Market insights and analysis

How dynamic, risk-managed investment solutions are performing in the current market environment

2nd Quarter | 2022

Market insights and analysis


Updates on how dynamic, risk-managed investment solutions are performing in the current market environment.

By Peter Mauthe

Many years ago, Jerry Wagner, Flexible Plan Investments’ founder and president, recognized the value of incorporating multiple asset classes into a portfolio—not statically but dynamically. Using multiple asset classes was not a new concept at the time, but using them dynamically was.

Over the years, investors and their advisers have occasionally pushed back on the use of multiple asset classes. They fear they won’t achieve the returns that a portfolio of stocks alone may provide. But something is missing from that argument: The returns that stocks alone provide come with the substantial risks associated with the stock market.

The importance of a risk-managed, diversified core

Many of my discussions with advisers have been about the importance of including a substantial core strategy allocation in every portfolio. I explain that the core strategy allocation serves as the foundation of the portfolio. It provides exposure to stocks, bonds, and alternatives (which we represent here by gold). The core strategy also provides exposure to intermediate-term and long-term strategy time horizons.

Next, I explain the benefits of core and satellite strategies and highlight the value of our approach to portfolio construction, which we call “strategic diversification” (see the following graph).

Our implementation of strategic diversification is systematic. That means it is objective and rules-based.

By continually monitoring and measuring the markets for many years, we have been able to develop rules that direct us in changing our allocations to each asset class (stocks, bonds, and alternatives/gold) as market conditions change. This ability to adapt to changing market conditions also means that success is not dependent on the performance of any one asset class.

This is important since all three asset classes do not tend to all move higher together for prolonged periods of time. The money to drive an asset class higher generally has to come from another asset class. Therefore, to have all three asset classes move higher simultaneously, money generally has to come from cash reserves. Once those reserves are reduced, money has to come from other asset classes to sustain the leadership of any one or two of the asset classes.

In any particular year, the leading asset class may be stocks, bonds, or gold. This brings us back to the need to have a dynamic core that can respond to these changing conditions rather than a static, or fixed, core allocation.

At Flexible Plan, we have taken the dynamic core of a portfolio to a whole new level with our QFC Multi-Strategy Core offering. This approach provides a dynamic allocation among core strategies that are each dynamically managed using mutual funds that are also dynamically managed. This provides a core allocation that is dynamic among the included strategies, between the asset classes in each strategy, and within each of the mutual funds used by each strategy.

This approach to the core provides, in a single allocation, three layers of dynamic management that can be tailored to five different risk profiles from conservative to aggressive. In addition to all of these features, using Flexible Plan’s QFC Multi-Strategy Core in a portfolio carries with it a fee credit that reduces the management expense incurred by the investor.

My hope is that after reading this, you will think of the dynamic core of a portfolio differently, appreciating it as the foundation of every portfolio.

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