Strategic Diversification

At KDM Investment Management, Inc., we believe a disciplined approach to asset management is the key to achieving your financial objectives. We create a diversified portfolio tailored to your objectives, financial situation, investment time horizon, and risk tolerance. We call our approach Strategic Diversification. Strategic Diversification:

Focuses on the long term: Chasing returns is a formula for disaster. We build a diversified portfolio, based on your individual needs, that offers the best potential for meeting your financial objectives.

Manages your risk: Your investments will be diversified across a broad selection of asset classes, giving you balanced exposure to a variety of different markets.

Maintains your asset allocation: We will realign your investments as needed to keep your asset allocation targets on track and to maintain the risk profile of your portfolio.

Controls costs: Our approach minimizes costs within the portfolio and our fees are some of the most competitive in the industry.

Puts you first: Because KDM Investment Management offers fee-based services as a Registered Investment Adviser, you can be sure you’ll receive unbiased advice. Our compensation and success are tied directly to helping you achieve your goals.

Monitors financial products: While our investment approach remains consistent, the financial industry continually creates new products. We evaluate these products and determine if they are appropriate for inclusion in your portfolio.

Investment Approaches

Strategic Diversification is one of many approaches to investing. We believe Strategic Diversification provides the best opportunity of meeting your financial goals. However, Strategic Diversification is the approach you hear the least about in the financial press and in mutual fund advertising. The best way to stick with the Strategic Diversification approach is to understand the other available approaches, then evaluate which approach gives you the best opportunity to meet your financial objectives.

The universe of investible assets is large. It includes art, stocks, real estate, and treasury securities, to name a few. These assets are grouped into asset classes. Asset classes include such things as stocks, fixed income, and real estate.   Each of these asset classes can be broken into sub-classes. For instance stocks can be broken into US stocks, international stocks, large company stocks, small company stocks, etc.   

Most investible asset classes have one or more indices that represent how the asset class is performing and has performed historically. The following diagram represents the approaches you can take to achieve performance in excess of the index for each asset class.

Approaches to outperforming an asset class are to pick specific securities within the asset class (security selection), to time the market as a whole (market timing), or a combination of the two. Market timing consists of selling when the overall market is high and buying when the overall market is low. In recent days for the US stock market, that would have meant selling all stocks in October 2007 and buying stocks again in March 2009.   There have been years of academic study of market timing and security selection. To summarize the findings, there is no evidence that anyone can time the market and little evidence that anyone can select securities and outperform the market. This is one of the central premises of the Strategic Diversification approach to investing utilized by KDM Investment Management. 

Does this mean that no one ever picks a stock that outperforms the market or calls a market turning point? No. When thousands of people are picking stocks and timing the market some of them will be correct at any given time. The ones that make the correct calls are in magazines and on television. This continues until they make an incorrect call, at which time they disappear back into anonymity to be replaced by the next “expert”.

The financial products industry spends millions of dollars on advertising to convince you that they, and you by utilizing their products, can outperform the asset class as a whole using security selection or market timing. The financial press joins the chorus by trumpeting today’s hot investment approach or idea. The vast majority of financial product advertising and financial press articles are based on security selection or market timing. That is why KDM Investment Management calls investment approaches based on security selection or market timing noise investing. It is hard, especially when emotions are running high, to ignore the noise. But, it is critical for your financial well being that you learn to block out the noise.

Strategic Diversification ignores the noise, building a portfolio tailored to your objectives, financial situation, investment time horizon, and risk tolerance. We then take a disciplined approach to maintaining the risk profile of your portfolio through consistent monitoring and rebalancing of the portfolio. By utilizing KDM Investment Management, you have a resource to help you stay on track when emotions are running high.