A complex lock.

How we build our portfolios

Our portfolios are constructing using the Black-Litterman model to determine the weights between the asset classes used for our client's investments.

Portfolio construction is a core responsibility of an investment advisor. We utilize the Black-Litterman model to determine the weights between the asset classes used for our client's investments.

The Black-Litterman model was developed by economists Fischer Black and Robert Litterman in the 1990s to address the limitations of traditional mean-variance optimization, a commonly used method for constructing portfolios. The model is based on investors' views on the expected returns of different assets, which can be combined with the market equilibrium to produce a more optimal portfolio.

We use historical data on the performance and correlation of ETFs that track indices representing our core asset classes: Domestic/US equities, International Equities, Emerging Markets, and Fixed Income as inputs to our model. We can then produce portfolios with target weights for each asset class with a target variance. This allows us to match a portfolio to an investor's risk tolerance.

For domestic equities, we take a direct-indexing approach. This allows us to reflect an investor's specific ethical preferences that they select in our platform. We construct a market-cap weighted portfolio of equities, while excluding any companies from the themes a client has selected. As of the writing of this blog, any equity position we open must be at least $1. As a result, smaller portfolios will be in fewer equities.

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Disclosure

The information contained in this communication is provided for general informational purposes only, and should not be construed as investment or tax advice. Nothing in this communication should be construed as a solicitation, offer, or recommendation, to buy or sell any security. Any links provided to other server sites are offered as a matter of convenience and are not intended to imply that Aligned Investing, LLC endorses, sponsors, promotes and/or is affiliated with the owners of or participants in those sites, or endorses any information contained on those sites, unless expressly stated otherwise.

Aligned Investing, LLC does not provide legal or tax advice and do not assume any liability for the tax consequences of any client transaction. Clients should consult with their personal tax advisors regarding the tax consequences of investing with Aligned Investing, LLC and engaging in these tax strategies, based on their particular circumstances. Clients and their personal tax advisors are responsible for how the transactions conducted in an account are reported to the IRS or any other taxing authority on the investor’s personal tax returns. Aligned Investing, LLC assumes no responsibility for the tax consequences to any investor of any transaction.

Investment management and advisory services–which are not FDIC insured–are provided by Aligned Investing, LLC (“Aligned Investing”), an SEC-registered investment adviser. Brokerage products and services are offered by Alpaca Markets LLC, member FINRA / SIPC. All investing involves risk, including the possible loss of money you invest, and past performance does not guarantee future performance.

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All investing involves risk, including the possible loss of money you invest. Past performance does not guarantee future performance. Historical returns, expected returns, and probability projections are provided for information and illustrative purposes, and may not reflect actual future performance. Please see our Form ADV for important details. Investment services provided by Aligned Investing, LLC.

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