Summit Capital Management builds and manages individual client portfolios. We bring a disciplined focus by carefully balancing risks with potential rewards.  We use asset allocation as the framework to construct investment portfolios that reflect clients’ individual risk preferences, the goals they expect to achieve and their expected investment time horizons.

Asset allocation is the process of dividing a portfolio among various asset classes to maximize return for a given level of risk.  Or, inversely, minimizing risk for a given level of return.  Fundamentally, the main objective is to settle on a risk/reward level that is comfortable for the client and best meets his or her needs.  Some investors may also wish to include real estate or “hard assets” such as collectables, coins and bullion.  When determining a suitable asset allocation strategy, we consider which assets classes to include in the portfolio and the percentage to be allocated to each selected class.

Although asset allocation and diversification are related concepts, they are not the same.  Asset allocation involves a determination of what percentage of a portfolio should be committed to each asset class.  Diversification, on the other hand, refers to the process of selecting individual investments within a particular class.  Each class has its own unique characteristics, causing it to behave differently than other classes in a given economic or market environment.  Ideally, poor performance by one asset class will be offset by superior performance from another class.  This interaction among different types of assets results in a more stable return over time.  This interaction is enhanced further with proper diversification amongst the individual asset classes. 

For example, let’s take stock asset class.  With diversification we can break the stock asset class into many categories: large cap stocks, mid cap stocks, small cap stocks, international stocks and emerging market stocks.  We would refine the percentage into each category to create the desired effect in the asset class.  If the asset values do not move up and down in perfect synchrony, a diversified portfolio will have less risk than the weighted average risk or its constituent assets, and often less risk than the least risky of its constituents.

The simple example of diversification is provided by the proverb, “don’t put all your eggs in one basket.”  Dropping the basket will break all the eggs.  Placing each egg in a different basket is more diversified.  There is more risk of losing one egg, but less risk of losing all of the eggs.

Asset allocation and diversification, when used together, help reduce risk and maximize return.  However, they do not eliminate risk; this means they reduce non-systematic risk by investing in a variety of assets.  Systematic risk is still present and cannot be diversified away.  Systematic risk affects the market as a whole, from events like earthquakes, major weather catastrophes, government policies, or international economic forces, just to state a few.

We regularly meet with clients to review their personal situation and share our views of the capital markets and other important developments related to their portfolio.  We take pride on our high level of service.  Our goal is to be available to our clients when needed by phone, email, and face-to-face meetings to accommodate any schedule.