We're helping investors solve their most important problem - TIME.

Traditional asset management processes are broken. Over 90% of active managers underperform their indices over 20+ year periods and yet the financial services industry still promotes style boxes, factor tilts and other performance-based portfolio strategies as planning solutions. Worse, this creates performance-based expectations instead of planning-based expectations which leads to performance chasing, higher turnover (higher taxes and fees) and behavioral biases. Defined Duration flips this all around and starts with your financial plan and ends by aligning specific assets to specific expenses and liabilities using a rigorously quantitative financial planning process.

In the traditional portfolio construction process the advisor does subjective risk profiling and implements a portfolio that tries to optimize for style boxed risk/return to meet client needs. Defined Duration quantifies the risk profile based on quantitative balance sheet and income statement inputs and then applies an asset allocation based on the underlying financial plan and needs, not a subjective risk optimization process. This gives the client greater clarity of why they own certain assets and the way those assets are actually helping them achieve their financial goals. Best of all, it can be implemented in a low fee, tax efficient, globally diversified and highly personalized manner.

We've created a unique process by which we can quantify a reasonable time horizon for different asset classes. This allows us to quantifiably match specific assets to a specific financial plan. For example, in the Defined Duration methodology cash and T-Bills are 0 duration instruments, the bond market is a 5 year instrument and the global stock market is a 15 year instrument. We use this method to match and blend different instruments or alternatives to different liabilities and needs in the financial plan.

Good financial planning requires some level of forecasting. We have to forecast future inflation, withdrawal rates, potential returns, etc. Defined Duration investing attempts to apply a reasonable time horizon to different asset classes so we can then match those assets to specific financial planning needs. We quantify this by estimating a potential sequence of returns risk applied to current market expectations of inflation and returns. This gives us a real break-even time horizon for potential asset returns which we can then plug into a financial plan for asset-liability matching purposes.

For example, let's say 5 year interest rates are 4% and future inflation expectations are 2.5%. If this 5 year bond has a modified duration of 4.5 and a real expected yield of 1.5% then this means that if interest rates rise by 2% (approximately a 9% shock to the instrument's price) that it will take about 7.08 years for it to break even in real terms. This is the instrument's "defined duration". This allows us to assess current market environments and apply an asset-liability matching process to the financial plan. This process can be applied across different assets as markets evolve and environments change to help planners assess reasonable time horizons to be applied to different assets.

Like all forecasting it will inevitably be imperfect to some degree, but with a reasonably conservative severeity assumption and reasonable forward looking return estimates we believe this process can quantify a realistic time horizon to assess certain expectations over which assets might perform inside a financial plan.

We quantify the defined duration of the stock market by assessing current market conditions (such as valuations), expected real returns and estimating the sequence of returns over time depending on an estimated drawdown risk. For instance, if US stocks have very high valuations and lower expected risk adjusted returns then they're more likely to expose us to higher sequence of returns risk. In other words, when stocks become very expensive they become longer duration instruments.

Different components of the global and domestic stock markets have different expected returns and risks. Our strategy tilts to different regions and styles depending on current market conditions. This will typically mean that when stocks are very expensive a shorter duration target requires reducing exposure to higher risk regions or styles. And vice versa. As an example of this, at present, US tech stocks are very richly valued against the rest of the US market. This might mean that a domestic defined duration strategy would require an underweight allocation in US tech if it is trying to achieve a lower average defined duration when compared to technology. We quantify this for different styles and regions in the global equity market and rebalance the portfolios depending on how the current defined duration matches with the specific instrument's target defined duration.

We are huge fans of low cost indexing style strategies. We always try to use the lowest cost and most appropriate instruments to meet someone's needs. But we also know that one size doesn't fit all. On average, a Defined Duration portfolio will hold a custom T-Bill ladder and 5-10 stock and bond ETFs. Where appropriate we apply an insurance sleeve to insulate the investor from excess inflation and other risks, but the insurance allocation is 100% optional. But in all cases, diversification, low costs and tax efficiency are essential aspects of the products we utilize.

In theory, our portfolios can be as simple as 3 funds across 3 time horizons, but our experience is that investors need more customization and greater diversification to meet life's varying time horizons. On average, the Defined Duration process will output 4-5 customized allocation blocks across the 0-3 year, 3-7 year, 7-15 year, 15+ year and perpetual time horizons. The instruments utilized within each bucket can be structured and customized to meet the granular goals of the underlying investor. While we tend to defer towards "simple is better" we also know that our financial lives are anything but simple and some level of customization is always required.

At a minimum you can expect to see a portfolio where the 0-3 year time horizon matches a personalized T-Bill ladder, 3-7 year time horizon matches intermediate bonds and safe multi-asset instruments, 7-15 year time horizon matches a balanced allocation of stocks/bonds, the 15+ year time horizon matches a more aggressive stock tilted allocation and the perpetual time horizon is matched to instruments that exhibit insurance like features (gold, managed futures, options, etc). It's all customized to match the client needs and so every portfolio is different.

We built customized software based on our methodology to help us implement a quantiative planning process. We anchor risk to balance-sheet strength and cash-flow needs, not emotional and subjective questionnaires or a portfolio manager's guesstimates about the best stocks. Everything about the Defined Duration method is rigorously quantitative to reduce subjective and emotional inputs. This helps us create a portfolio based on your balance sheet robustness, not your emotional fragility thereby helping us build a portfolio that can ride out any storm knowing that we all become fragile when markets get volatile.

Sequence of returns risk is the risk that your financial assets won't give you liquidity when you most need it. For instance, someone retiring in 2007 with a very aggressive allocation of 80% stocks and 20% cash would have found themselves drawing down their cash allocation at the same time they see their total portfolio balance fall over 40%. This creates the risk that the investor has to sell into a downturn or worse, consider going back to work to bolster financial certainty. DDI is designed to reduce sequence of returns risk by creating a more consistent asset-liability match across your financial plan. This is achieved by creating a proper allocation based on balance sheet and income statement robustness and ensuring the assets owned are aligned with the expected expenses and liabilities you will encounter across life. Because the assets are temporally structured this creates a higher probability of financial success.

To understand this let's use a simple example of an investor who owns two buckets - a 60/40 stock/bond fund and a cash reserve allocation with $50,000 annual expenses. If this investor had $1,000,000 and two years worth of expenses in cash ($100,000) then their portfolio declines by about 30% during the 2008/9 downturn. By the Summer of 2009 the investor has spent down most of their cash reserves and must now consider selling their 60/40 fund or bolstering income somehow. This sub-optimal outcome is the result of poor asset-liability matching. Had the investor properly blocked their assets by diversifying across more time horizons they would have reduced their sequence of returns risk. For example, they could have owned the exact same asset allocation by disaggregating the 60/40 fund into more time horizons such as a 60% global equity fund and two other bond ETFs, weighted at 20% each, such as a 2 year bond ETF and a 7 year bond ETF. In doing so they would have owned assets structured out over 0, 2, 7 and 15 year time horizons. And instead of having to sell the 60/40 fund all at once into a downturn they would have had the optionality to sell the 2 year instrument when they needed cash. This would have saved them from selling stocks into the downturn thereby allowing stocks more time to recover.

This is the power of temporal diversification and why DDI can enhance certainty in asset allocaton.

Reviews are tied to plan changes and horizon shifts, with disciplined rebalancing policies to keep durations aligned. Every Defined Duration portfolio is different because every client is different. These customized plans require as much upkeep as the client needs. So the answer is, it depends! But we try to minimize rebalancing knowing that more activity can result in more taxes and fees. That's why we built our own set of products and software to help implement the Defined Duration strategy. These products are specifically designed to reduce activity and enhance customization by maintaining an asset allocation and process that better aligns with our goals.

While we have our own customized products and software we also truly believe that this form of asset allocation is a better way to do financial planning and asset management. We didn't build this process with the goal of getting rich. We built this process with the goal of solving an obvious problem in finance - the problem of time. So yes, when we make recommendations we always try to do what's in the best interest of the people we are privileged to work with.