Which model portfolio is right for you?

If you are looking at the models for the first time a natural question is which one is right for you? We can offer you some guidelines or suggestions that might help you choose.

Mendocino, Hatteras and Halifax are our three original models. They were started January 1, 2002. All of the other models are newer. You can look for date of origin on their individual portfolio descriptions.

Mendocino and Hatteras

Mendocino is designed primarily for retirement accounts including IRA, Roth IRA, SEP-IRA, 401k, Profit Sharing, Defined Benefit or any other type of ERISA account.

Hatteras is primarily for taxable accounts like individual accounts, trust accounts, or joint (community property) accounts.

The minimum investment for Mendocino and Hatteras is $500,000 each.

The objectives of both models are the same. Both portfolios use a broad spectrum of asset types and classes to achieve their two stated objectives:

"Achieve competitive total return with below average portfolio volatility; and positive investment returns over a 12 month period in almost any investment climate. They should be considered balanced portfolios and are managed as if they are the entire investment portfolio of a prudent investor."

The true differentiation between Mendocino and Hatteras is simple. Mendocino is for tax-deferred retirement accounts. Hatteras is for taxable accounts.

Halifax

Halifax is managed to mimic the performance of Mendocino and Hatteras, but it accepts smaller investments. The account minimum is $250,000.Halifax can accept taxable or tax deferred accounts.

Hatteras, Mendocino and Halifax are all considered "balanced portfolios" because at any given time they may contain stocks, bonds, cash and securities representing commodities. They have no fixed formula and may not have all these asset classes all the time, but they have the flexibility to do so.

Fresnel

Fresnel was designed for investors who are willing to accept more concentration of assets in order to attempt to outperform our more balanced models. For example, from time to time it has held only five positions. There have been times when it has been allocated entirely to gold and cash. There is no fixed asset allocation strategy. Fresnel can be significantly over weighted to one or more asset classes at the discretion of the manager.

The Fresnel model accepts taxable and tax deferred accounts. The minimum investment in Fresnel is $750,000. It is our only model that has a fixed asset management fee plus and incentive fee for the manager.

Pt. Reyes

The Pt. Reyes model is for investors seeking current income, protection of capital and low volatility. It invests primarily in fixed income instruments (bonds) to achieve this goal and is limited to an allocation of at least 80% bonds and no more than 20% common stocks. However, it is currently invested entirely in bonds, and holds no stocks. Our most risk adverse clients are currently using Pt. Reyes as their safe haven. The minimum investment is $250,000. The model is suitable for taxable or tax deferred investments.

Key West

The Key West model is suitable for investors with accounts $150,000 or more; and who are seeking exposure to equities but do not want to own individual stocks. The Key West model is invested in Exchange Traded Funds (ETF's) and bonds, and suitable for taxable and tax deferred investments.

Because it owns no individual equities, the frequency of trading in Key West is often far less than in some of the other models. We attempt to own ETF's that represent sectors of the market that can add value to the overall portfolio. At 5T Wealth we appreciate that some clients simply don't want any exposure to individual equities so for this reason there is no upper limit on account size in this model.

Cape Lookout

Cape Lookout is our only model that has no minimum account size. It uses only mutual funds as an investment vehicle. It never owns individual stocks, bonds or ETF's. It was originally started so that we could provide a suitable investment vehicle for small accounts. We have many clients who have more than one account with us. Usually most of their investment accounts meet the minimum size of our other models. But they may have an IRA account that has long been dormant, is no longer funded, and never grew. We decided that these small accounts were most suitable for mutual fund investing.

It turns out that the model has been very successful and it is now chosen more regularly as a primary account by newer clients.

We use "best of breed" mutual funds. We use a proprietary method of selecting funds using Morningstar and Smart Money data bases to facilitate our fund selection process.

The model currently has exposure to stocks, bonds and precious metals through managed mutual funds.

Pt. Sur

Pt. Sur is our newest model. It was started January 1, 2010. It is the only model we manage that is currently invested entirely in individual stocks. The stocks we chose for the model are highly diversified by industry groups, sectors and even countries of origin. All the stocks do have a common characteristic however. They would all be considered "high yield" in that all of their dividends exceed the yield of the S&P 500. Most of the stocks selected for the portfolio also have an excellent history of raising their dividend year after year.

Therefore the primary objective of Pt. Sur is current income from dividends that may rise over a number of years, as companies raise their dividend payouts.

We see this model as particularly suitable for investors with a long time horizon, who may be preparing for retirement or in retirement and are seeking a way to "get a raise in pay". Investors must also be able to tolerate the daily fluctuations of the stock market.

During the stock market collapse of late 2007 to early 2009 many companies stopped paying dividends because they could no longer afford to. All of the companies in the Pt. Sur model continued paying dividends right through that period of time. Since these companies were able to withstand the test of one of the worst market debacles of all time we believe that their dividends are very reliable.

We find that most of the clients who have selected Pt. Sur are pairing their account with another one invested in Pt. Reyes, thereby getting 50-50 exposure to stocks and bonds while maintaining a competitive current income distribution.

We hope this guide helps. If you have questions about the models feel free to email paul@5TWealth.com or lee@5TWealth.com.