I-Pension Investment Methodology

 New clients tend to ask the same question of us:  "If we let you manage our money, what would you do with it?" This document summarizes our investment methodology and approach to the global markets.

 

In essence, there are three ways to manage money:

  • Market Timing: Whenever one makes an investment decision based on a forecast of a market, asset class, or security going up or down, market timing is being utilized.
  • Security Selection: This involves deciding which asset to buy or sell compared to others of the same type. For example, deciding whether to buy Verizon or AT&T would be a security selection decision because both stocks are in the same asset class. Stock picking is the most common form of security selection.
  • Asset Allocation: This is the art and science of determining how money gets divided up between different asset classes to lower risk and increase returns. This is also known as optimizing an investment portfolio, making it more efficient. Asset classes are how different types of investments are categorized to distinguish them from one another. For example, CDs, bonds, stocks, commodities, and real estate are different in terms of risk, reward, taxation, and income.

The first approach - market timing - involves too much guesswork and risk and, as a result, is not part of the I-Pension strategy. Security selection is a good way to take advantage of market inefficiencies and, when combined with an option-writing strategy, can generate additional income. Security selection is used to some degree in the majority of I-Pension accounts, with the extent determined by the client's risk temperament and time frame. Asset allocation serves as the cornerstone of I-Pension's approach to money management.

 

In general, the asset allocation strategy employed in I-Pension's investment models is based on the 7Twelve Portfolio developed by Prof. Craig Israelsen, who co-authored Your Nest Egg Game Plan with I-Pension's President, Phil Fragasso:

 

The 7Twelve Portfolio In Action

Prof. Israelsen constructed the 7Twelve Portfolio to provide steady and consistent returns, while managing risk to an appropriate level. The chart below shows how the 7Twelve Portfolio performed from 2001-2010 compared to a traditional 60-40 balanced portfolio.

 

Keep in mind, of course, that past performance is no guarantee of future returns. In addition, no I-Pension client has an account that perfectly mirrors the 7Twelve Portfolio.