How Mission Wealth Uses Portfolio Modeling for Clients

In this brief video, we’re going to show how we can stress test your portfolio and model out changes to make sure that we have a smoother ride as the world changes around us. Let’s dive right on in. What you’re going to be looking at is a highly sophisticated software that takes billions of data points on every position you own and can track how those positions that you’re invested in move with the changing conditions of the world around us. So, let’s first just give you a summary of what you’re looking at. On the right hand side, you’ll notice in this green box two different portfolios. The first is noted 60/40 no alts and this is just a sample client. What this means is that this sample portfolio is 60% invested in growth stocks, 40% invested in incomebased investments, bonds, and they don’t have any alternatives. The alternatives are anything that’s not a stock, not a bond.

So, for example, the most common and widely known alternative is real estate, but there are others like private stocks and private bonds. This first portfolio is just showing you what a more typical retirees portfolio might look like. 60% growth, 40% income. And then as we move to the right, you’ll see another portfolio that includes some of those alternative investments, which could include real estate, private stocks, private bonds, and more. And all the way to the left, you’ll see a bunch of different economic levers. So these are the shocks we can apply. It’s how we can test how sensitive every single one of the positions you own is to the changing world around us. And we can compare it to our recommendations to make sure that what we are recommending has better results or less risk depending on your preferences. So we’ll start with a really common example over on the lefth hand side. The S&P 500 declines by about 10% on average once per year. Most of the years end positively.

About 70% of years are positive in the marketplace. But throughout the year, it’s really common for us to have a 10% pullback. So, if I go ahead and click on this 10% pullback, you will see the S&P 500 over here, we have lowered it by about 10%. And we are saying that this shock takes place over the course of a year. And the way you can see this is on the left hand side the 60/40 portfolio has done its job. We’ve diversified away from just the broad stock market. So when the broad stock market loses 10%, this portfolio has only gone down by about three and a half. And if we further diversify by including some of the alternative investments goes down by about 1 and a half. And then if I want it to get a little cute, I can take this S&P 500 and I can move it even further down to say what about 20%. Down. And we can see the defense that is played across both portfolios. I can also see what happens when the S&P 500 goes up. And we can model how these portfolios participate in the upside.

More often than not, the world changes around us and a lot of us have fears or concerns and we want to make sure that our portfolios play good defense against certain shocks. This allows us to model that. Good example would be a lot of folks concerned about AI and the rising valuations we’ve had very quickly. So you’ll see we’ve modeled a few different scenarios, one of which is an AI bubble burst. So I’m going to select that and I’m going to show the economic conditions that we would expect to be associated with an AI contraction. And in this case, we have good defense as well. We see that the S&P 500 has taken quite a hit from an AI correction, but the portfolios have played really good defense. This software allows us to model a whole lot of other scenarios to make sure that the risks you’re concerned about are accounted for. Changes in interest rates are another example that we can model.

We can also make sure that when we have geopolitical risk, such as what’s in the news right now with Iran, we can model very specific levers to pull. For example, if we had an increase in the cost of oil, what happens to the portfolios or a decrease in oil? We can model the sensitivity of just about any variable in your positions and ours. And this allows us to have a really comprehensive view of what changes need to be made in the portfolio to play better defense and to still have a really strong offense. Thanks for taking some time with me.