After designing your first custom asset allocation, we begin the service of portfolio management. In our management, we strive to achieve market returns while lowering volatility and reducing expenses. We do this through multiple aspects of our management.

Periodic Rebalancing

As our client, we monitor your investments daily for potential problems and recommend changes or rebalance your accounts as necessary.

Unattended portfolios can quickly become more volatile as the stocks outgrow the bonds. However, tending to your portfolio too frequently can stifle some of the volatility that produces returns.

The strategy of chasing returns is sadly common because people wrongly believe that an investment is going up (present tense) just because it went up (past tense). Although some people talk about “the momentum of the markets,” the stock markets are more volatile than such simplistic language and a rebalancing schedule is better at achieving the rebalancing bonus than market timing.

At Marotta Wealth Management, we set a non-biased rebalancing schedule to help remove the emotional desire to time the markets, rebalancing when your portfolio is significantly far enough out of balance to warrant action or once a quarter.

This kind of periodic rebalancing either provides more stability or produces a rebalancing bonus, depending on the direction of the rebalance.

Tax-Efficient Accounts

Only contributions are taxed for Roth IRAs, so both capital gains and distributions from a Roth account will never be taxed again. Thus, stocks which historically experience more growth are better placed in a Roth account, if possible, because the growth will neither be taxed as capital gains or as income.

Every other kind of IRA has distributions taxed. This means the more the assets in the IRA grow, the more tax the owner will owe when the money is withdrawn. As a result, IRAs are beautiful places to purchase the stability side of the investments, such as bonds. Because of their odd tax rules, it also is slightly tax advantageous to purchase real estate investment trusts (REITs) in an IRA over a Taxable account.

Taxable accounts, such as Joint or Trust accounts, are always taxed. The contributions are post-tax money and capital gains are taxed as well. As a result, purchases made in a taxable account can get trapped in their security selection by the penalty of capital gains. For this reason, taxable accounts should be as balanced as possible.

Mutual funds, which can independently kick off capital gains, are best invested in a non-taxable account. Furthermore, because of their odd tax rules, REITs are better invested in a non-taxable account.

At Marotta Wealth Management, we take all of these principles into account when we are implementing your asset allocation across your portfolio and strive to place securities efficiently across your account types.

Low Cost

We choose investments with no or low transaction costs and low expense ratios.

We take expense very seriously as the cost of a fund makes it underperform its own benchmarks.

In 2010, Morningstar did a study to find out if Morningstar stars, their rating for funds, was the best predictor of higher returns. However, they found that low expense ratio, not star rating, was the best predictor of high returns. You can read about this more in our article “Mailbag: What’s Better At Predicting Future Returns Than Morningstar Stars?

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Investment Committee

Elias McQuade

Financial Analyst, CFA

Courtney Fraser Regan

Wealth Manager, CFP®

Beth Nedelisky

Wealth Manager, CFA, CFP®

Megan Russell

Chief Operating Officer, CFP®, APMA®

David John Marotta

President, CFP®, AIF®, AAMS™

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