Wealth Management Strategy

Black and white dashboard on a monitor showing market trends

Our Approach

We start by finding out as much as we can about you and your needs. Together, we will define your investment objectives through a series of questions designed to establish risk level, time horizon, income needs, and overall objective. Your responses are instrumental in shaping what we do for you, especially when it comes to investments in stocks and bonds. This portion of your portfolio holds both the greatest opportunity for growth and the greatest risk.

Since many different types of asset classes and global markets offer attractive return potential over time, superior investment returns are most effectively realized through proper asset allocation, geographical diversity, and diligent risk control. This focus on a risk-adjusted return drives our approach to asset allocation among these diversified asset classes. Identifying the opportunities and assessing the associated risks are the primary responsibilities of our investment team. Our portfolio managers build each client’s portfolio based on the team’s decisions, following the guidelines each client defines for their investment objectives and acceptance of risk. This positions portfolios to participate in upside returns while mitigating the downside risk to principal, at levels that fit each client’s needs and preferences.

At Mascoma Wealth Management, our core objectives for most clients are to:

  • Preserve principal
  • Minimize volatility
  • Produce consistent returns

Diversification across non-correlated assets within a portfolio lowers the risk for a given expected rate of return. Since different asset classes and different global markets offer unpredictable, but uncorrelated rates of return, superior risk adjusted investment returns are most effectively realized through proper asset allocation, geographic diversification and diligent risk control. This focus on a risk adjusted return drives our approach to asset allocation among these diversified asset classes. Identifying the opportunities and assessing the associated risks are the primary responsibilities of our investment team. Our team’s decisions and selection of broadly diversified passive and actively managed Exchange Traded Funds position portfolios to participate in upside returns while mitigating down side risk to principal. The portfolio manager then creates a portfolio of these Exchange Traded Funds following the guidelines each client defines for their investment objectives and acceptance of risk.

Exchange Traded Funds (ETF’s)

An exchange traded fund (ETF) is an investment vehicle that is priced and traded on an exchange throughout the day like a stock. ETFs hold a basket of securities (stocks, bonds, or commodities) and most track a market-based index (e.g., S&P 500, Russell 3000, Barclay’s Aggregate Bond Market). ETFs offer a multitude of potential benefits, including: 

  • Diversification – Since ETFs are often designed to track market indexes they may contain hundreds or thousands of securities. Currently, Mascoma Wealth Management (MWM) is employing 14 ETFs in our client portfolios, two-thirds of these ETFs hold over 200 securities. This helps to minimize risk in the portfolios. 
  • Transparency – ETFs report holdings daily, so investors know what they own and can verify if their ETFs are closely tracking their respective benchmarks. This differs from Mutual Funds that report holdings monthly or quarterly. 
  • Lower trading costs – ETFs don’t require minimum investments and don’t charge front-end loads or redemption fees, providing investors significant cost savings. Many of the ETFs employed by MWM are also available to our client’s commission free. 
  • Lower expense ratios – The ETFs employed by MWM have expense ratios that range from a low of 0.04% (for a broad-based equity ETF) to a high of 1.00% (for a specialized high yield bond ETF). The average expense ratio is 0.15%. 
  • Tax efficiency – ETFs distribute fewer capital gains to shareholders than traditional mutual funds since many are based on fixed passive indices. Typically, ETF investors only realize capital gains or losses when they sell their shares.

Broad Diversification

Numerous empirical studies have shown that a broadly diversified portfolio can deliver superior returns with minimal volatility. Over a twenty-year period, a portfolio invested in nine asset class delivered an annual return of 6.8%, with only four years of negative returns.

  • U.S. – Large Cap Growth
  • U.S. – Mid Cap
  • U.S. – Small Cap
  • U.S. – Real Estate
  • Foreign EAFE Index
  • Emerging Markets – Total Market
  • U.S. – Broad Market Investment Grade
  • U.S. – Corporate Investment Grade
  • U.S. – Corporate High Yield
  • U.S. – Government TIPS
  • Foreign – Broad Market

Asset Classes

Our investment team assesses these multiple asset classes focusing on growth, inflation, interest rates, current valuations, price trends and fiscal policies in every market where we may invest. Utilizing a variety of independent sources and research the team decides which asset classes to invest in and the size of the investment.

Equities

The proper equity allocation for you, our client, depends on your investment objective balanced with our assessment of return and risk potential in both U.S. and foreign stocks. We use Exchange Traded Fund (ETF) securities for all U.S. large-, mid-, and small-cap asset classes as well as for developed and emerging international markets. An Exchange Traded Fund is an investment vehicle that is priced and traded on an exchange throughout the day like a stock. ETF’s typically hold a basket of securities and most track a market-based index such as the S&P 500, Russell 3000 or EAFE. ETFs differ from mutual funds in that they can be bought and sold throughout the day and typically do not distribute capital gains. The benefits of ETF’s include broad diversification with very low expense ratios and greater tax efficiency. We use independent, quantitative research to analyze the universe of potential ETFs and rank them according to our desired metrics for valuation, liquidity, growth, performance, and spread. When it is time to select from these highly ranked ETFs for a client portfolio, we again research economic conditions to determine the best asset classes and the correct allocation options at the time we are ready to invest.

Fixed Income

Fixed-income securities are an important part of almost every portfolio. When investing in fixed income ETFs and securities the team assesses economic factors, monetary policy, valuations, interest rates and risk. An evaluation of all durations in Governments, Agencies, Corporates and Municipals is conducted to determine proper duration for balancing risk/reward. Typically diversified duration approach is used to limit volatility to interest rate changes and ensure a consistent market rate return. We may buy individual fixed income securities but for high yield, multi sector and foreign asset classes we will only use mutual funds or ETFs.

Alternative Investment Vehicles

We may recommend investment in commodities, gold, and real estate depending on the attractiveness of these asset classes relative to equities and fixed income. These asset classes can also provide added diversification and be a source of risk control in various economic cycles. When investing in these asset classes, we also use ETFs and managed mutual funds.

Portfolio Management

  • Portfolios are invested with typically a 1-5% cash position for operational purposes. 
  • Portfolios are broadly diversified and invested in 6-12 different asset classes.
  • For all ETFs we review independent analysis and ratings of management, performance, expense ratios and liquidity relative to category peers.

Tax Strategy

  • Review all potential investment actions affecting taxable accounts before execution
  • Use a first-in, first-out selling approach in trimming positions and adjusting for account withdrawals
  • Accommodate year-end, tax-motivated instructions by clients

Pre-Acceptance Reviews

Our account pre-acceptance process includes a review by a Senior Portfolio Manager to identify any asset presenting unusual needs. Any such asset that cannot be disposed of prior to transfer of the account to the firm shall be noted and a plan for its management/disposition shall be made and addressed after the opening of the account.

Annual Reviews

After the initial review, the assets of each discretionary investment account will be reviewed and analyzed each calendar year by the Senior Portfolio Manager and Managing Director to evaluate whether the assets are appropriate, individually and collectively, for the account. When clients have multiple investment accounts with the firm, it is the policy of the firm to review the entire relationship as one.

Each annual investment review shall include:

  1. Amount and description of investments
  2. Allocation of investments
  3. Adherence to allocation targets and ranges for asset classes
  4. Costs basis of the investments
  5. Market or appraised value at review date of the investments
  6. Client’s investment objective and appropriateness of investments

Risk of Loss

Investing in securities involves risk of loss. We do not represent or guarantee that our services or methods of analysis can or will insulate clients from losses due to market corrections or declines. Past performance is not an indication of future performance.

Not FDIC Insured • No Bank Guarantee • May Lose Value • Not A Deposit • Not Insured By Any Federal Agency

Mascoma Bank is not a registered broker dealer.