Static vs. Dynamic

Legend Advisory Corporation's investment discipline is dynamic in nature, and is based on a proactive analysis of various market variables. Legend Advisory Corporation believes this approach is superior to static allocation methodologies which are reactive, looking only at past performance to predict future results.¹

With a static investment strategy, a portfolio is rebalanced from time to time as the initial allocation mix changes due to varying performance in different sectors. It is a reactive process that occurs at predetermined intervals.

For example, a portfolio consisting of a static allocation of 60% equities (stocks) and 40% debt (bonds) could change over time due to greater appreciation in the equity sector. This will result in the portfolio obtaining a higher than 60% equities holding. To restore the balance of 60% equities and 40% debt, money could be shifted from the equity investments into debt instruments accordingly.

Unfortunately, this strategy ignores the fact that market trends may vary in both frequency and length. Poorly performing sectors may continue to underperform even as assets are being shifted into that sector or an extended market upturn in a particular sector may not be appreciated as assets are periodically shifted out of that sector.

Conversely, a dynamic investment methodology involves distributing assets among different investment classes based on expected future performance rather than solely on past performance. It is a proactive, forward-looking process designed to optimize the allocation based on the client’s needs and current market conditions. These programs seek to match the investors’ risk tolerance and investment time horizon with opportunities available in the market in an effort to achieve a balance of risk and return.

For example, with a dynamic perspective, a portfolio that initially consisted of an allocation of 20% international equities, 60% domestic equities and 20% domestic debt may be allocated to consist of 45% international equities, 30% domestic equities and 25% domestic debt. The weightings, in this case, reflect current and expected trends in the market. Should market conditions change, the portfolio allocations can change in an effort to take advantage of perceived new opportunities and to attempt to avoid potential threats that develop as a result of the complex interaction among various global market forces.