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Diversification

Let's assume that you have just received a stock tip from one of your golf partners. You take all of your small nest egg, $10,000 and buy it. In two months, the stock is down 50% or more (not unheard of since March 2000). Your $10,000 is now worth $5,000 or less. Another example might be that another golf buddy suggests three different stocks and you invest $3,333 into each. Two months later one is up 25%, another is even and one is down 50%.

 

Stock A $ 3,333 x 1.25 % $ 4,166
Stock B $ 3,333 x 0.00 % $ 3,333
Stock C $ 3,333 x 0.50 % $ 1,666
    $ 9,165

That is the power of diversification, it can go a long way in reducing risk. In the above examples the stock may all have been small cap growth stocks. You might further reduce risk by allocating between growth and value stocks. You could further diversify by weighting between small cap, mid cap and large cap stocks. You could also diversify into real estate and possibly preferred stock for income. You get the idea "Never, ever put all your eggs into one basket", so said the tech investor in 2002.

We believe that investors should diversify not only across asset classes, but among securities within each asset class. Within a well thought out and developed portfolio that has taken into account the investors tolerance for risk and time frame. There should be a much greater probability of achieving expected returns with lower standard deviations (risk). Remember that each asset class plays a different role within each portfolio and what you are trying to accomplish is that the "Whole will be greater than the sum of its parts."

*The following example of assembling asset classes was taken from the Diversified Fund Advisors Web Site (
www.dfaus.com), it is referred to as Hypothetical Examples of Assembling Asset Classes in a Structured Approach.

 
  Portfolio 1 Portfolio 2 Portfolio 3 Portfolio 4
Wilshire 5000 Index 100% 60% 50% 45%
Lehman Aggregate Index   40%    
DFAUS Large Cap
Value Portfolio
 
    15% 15%
DFAUS Micro Cap
Portfolio
 
    15% 15%
DFAUS Small Cap
Portfolio
 
    15% 15%
DFA International
Small Cap Portfolio
 
    5% 10%
Total 100% 100% 100% 100%
         
*Annualized Return 9.70% 9.02% 11.61% 11.01%
Annualized Standard Deviation 14.99% 9.24% 14.75% 14.13%


In July of 2001 one of the founders of ETFidea, LLC,  Bill Kriesel, became frustrated over the way in which clients who were involved in mutual fund wrap programs were being charged for their actively managed portfolios. He approached the other principals in the firm and said, "there must be a better way, our clients are starting off on the average of 1.5% per year negative return, and there must be a better way."

After twelve months of investigation and research and attending various investment management seminars we believe there is a better way.


EXCHANGE TRADED FUNDS

Hence ETFidea, LLC was formed in August 2002 and became a Registered Investment Advisor with the State of New York in October of 2002.

Let's see if we can build a risk averse exchange traded fund portfolio for you.

120 Madison Street, 1700 AXA Tower II
Syracuse, NY 13202
Phone: (315) 472-6221
Fax: (315) 701-2789
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Due to various state regulations and registration requirements concerning the dissemination of information regarding investment products and services,
 we are currently required to limit access of the following pages to individuals residing in states where we are currently registered. 

Investment products and services available only to residents of:  New York, Florida, California, Maine, Massachusetts,Colorado, New Jersey, Connecticut, Virginia, South Carolina, Washington, Georgia, Maryland, Alabama and Indiana .

Securities offered through Cadaret, Grant & Co., Inc. Members FINRA and SIPC
110 West Fayette Street, 5th Floor, Syracuse, NY 13202

Diversified Capital Management, LLC and ETFidea, LLC  are not affiliated with Cadaret, Grant & Co., Inc.



This communication is strictly intended for individuals residing in the state(s) of NY. No offers may be made or accepted from any resident outside the specific states referenced.
 


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