At LSM, our wealth management philosophy reflects a practical, common-sense approach that has been refined with many years of experience. There are certain principles that we strongly embrace, and they influence the way we manage investments.

Your Goals

Would you rather be told that "your portfolio performed X%" or that "you are on track to achieve the kind of life you want for yourself and your family"? We believe the best performance benchmark is progress towards your individual goals vs. a performance number.

Once you have goals that are achievable, why would you want to take on more risk than is necessary to reach them? Ironically, many people get caught up in trying to maximize their short-term returns and expose themselves to much more risk than they realize. Why? Perhaps they do not know how much money they need to achieve their financial goals – or worse yet, don't even have any goals.

We believe it is important to measure your investment performance in the context of your life's goals. Otherwise, how can you achieve the proper balance between living today and preparing for tomorrow? Without that context, how does knowing "your portfolio performed X%" give you any comfort? Our first step in investing is to help you define realistic goals based on your circumstances and desires.

Steady Progress

Would you rather be the tortoise or the hare? Our investment approach seeks steady progress towards our clients' long-term financial goals rather than maximum quarterly returns.

We are more concerned with preservation of capital than with seeking unrealistic returns, and for good reason: a major factor in realizing your long-term investment goals will be how well you avoid overwhelming losses. The performance of the stock market over the past 12 years demonstrates the "irrational exuberance" and subsequent anguish associated with pursuing unsustainable returns.

A Diversified Portfolio

Studies have demonstrated that "Asset Allocation" decisions account for more than 90% of the variance of an investment portfolio's return; manager selection, cost and other factors account for the remaining less than 10%.1

Tactical Asset Allocation

Price and value often diverge, creating opportunity. Tactical Asset Allocation is a dynamic investment style that adjusts asset allocations to a forward view of the relative risks and returns of various asset classes. Unlike stock picking, in which the investor predicts which individual stocks will perform well, tactical asset allocation involves only judgments of the future return of complete markets or sectors. This is distinguished from "rebalancing" a mechanical, passive process of bringing portfolios back to their original allocations.

Why Global Portfolio?

Global capital markets are critical to the choice of asset allocation. Currently, U.S. Equity accounts for less than 20% & U.S. Bonds accounts for less than 30% of the total global capital markets. Additionally, currency exchange rates can multiply the local currency market's results.

Who really is a Long-Term Investor?

Would adverse investment results over a 2-3 year timeframe negatively impact the financial operations of your organization or personal life? If the answer is yes, then investment vehicles with 10 and 20-year cycles or performance allowances may not be suitable for your needs. Proactive investment management could be an appropriate strategy to get you past the short-term, so you can enjoy the long term.

Risk Management

The "arithmetic of loss" can require multiple years for a portfolio to recover from a substantial loss. LSM recognizes that time could run out for certain investors. Therefore, LSM builds five levels of risk management into our clients’ portfolios as part of an integrated risk management system.*

• Strategic reallocation; establish equity risk
• Wide diversification; minimize allocation risk
• Position limits; reduce concentration risk
• Passive indexes; minimize security selection risk
• Tactical overlay; manage event risk
  * These are for portfolios that are managed in Tactical ETF investment accounts.

Objectivity

Have you ever waited on a losing investment to "come back" before you sold it? If you did not already own your current investments, would you still buy them today? It is often very difficult for individuals to take a purely objective, unemotional view of their own investments. As an outside professional resource, one of the ways we add value is by actively and unemotionally evaluating our clients' portfolios and making objective decisions as needed.

For more information on LSM's services, contact us today at 703-827-2300, toll free at 1-800-842-8834, or email us at information@lsmfinancial.com.

1 D. Harry M. Markowitz, University of Chicago, Nobel Prize 1952 and Brinson, Singer & Beebower, Determinants of Portfolio Performance II, Financial Analysts Journal, May-June 1992.