Portfolio construction requires an understanding of the client's needs, goals and investment time horizon. Strategy incorporates investment consulting to facilitate this endeavor and incorporate a discussion of all of a client's investment holdings, including non-liquid assets. Client liabilities should also be considered, providing a true picture of a client's net worth and required rate of return.
Once this information has been collectively evaluated, the client's overall risk/return characteristic should be determined. A client questionnaire is typically used to ascertain this profile. Upon completion, the client's required rate of return and risk profile are combined to create the portfolio's overall equity-to-fixed income mix, which also represents the portfolio's overall benchmark. Generally, this is some combination of the Russell 3000, MSCI EAFE index and Lehman Brothers aggregate Index.
