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Our Investment Strategy Explained
When clients ask how we invest their money, the answer is not exactly the same for everyone.
A portfolio should reflect the person who owns it.
Your time horizon, tolerance for market volatility, tax situation, residency, income needs, and long-term goals all affect how a portfolio should be constructed.
At AIO Financial, we customize portfolios around those individual circumstances, but the underlying investment process follows a consistent framework.
Our approach is built around three main pillars:
Risk-based model portfolios
Globally diversified equity exposure
Non-correlated assets paired with disciplined rebalancing
The goal is not to predict the next winning stock, sector, or market.
Instead, we focus on building portfolios that match each client’s circumstances, remain diversified across the global economy, and have a disciplined process for responding to market movements.
Pillar 1: Portfolio Allocation Starts With Time Horizon and Risk Tolerance
The first question we ask is simple:
When will you need this money?
The second is equally important:
How comfortable are you watching the value of your portfolio fluctuate along the way?
Those two questions help determine the appropriate balance between growth-oriented investments and more conservative assets.
A younger investor saving for retirement several decades from now can usually tolerate more short-term volatility because there is time for markets to recover.
A retiree who expects to begin withdrawing money next year has a very different situation.
That does not mean age alone determines risk.
Someone can have a long investment horizon but still be very uncomfortable with market declines. Another investor may have a shorter time horizon but be comfortable accepting more volatility.
That is why we treat time horizon and risk tolerance as separate considerations.
At AIO Financial, our model lineup includes eleven portfolios ranging from approximately 15% equities at the conservative end to approximately 95% equities at the growth-oriented end.
Most clients fall somewhere between those extremes.
The important point is that the portfolio is not intended to remain frozen forever.
As circumstances change, the allocation may change as well.
A client may:
Retire
Begin withdrawing income
Relocate
Move abroad
Receive an inheritance
Sell a business
Experience a major change in income
Become more or less comfortable with investment risk
When those things happen, the portfolio should be reviewed.
Rather than leaving someone indefinitely in the same allocation, we can move them along the risk spectrum as their life changes.
Cross-Border Clients May Need Additional Customization
For Americans living abroad, portfolio construction can become more complicated.
Two clients with similar risk tolerance may still need different implementations because of:
Tax residency
Currency exposure
Local taxation of certain investments
Brokerage or custody restrictions
Retirement-account considerations
Country-specific investment rules
The model portfolio provides the target allocation.
The client’s individual situation determines how that allocation should actually be implemented.
This distinction is especially important for expats and internationally connected families.
Pillar 2: Equity Exposure Should Reflect the Global Market
Once we determine how much of a portfolio should be invested in equities, the next question becomes:
Which equities should we own?
Many investors naturally concentrate heavily in the country where they live.
For Americans, that often means holding almost entirely U.S. stocks.
The United States represents a very large portion of the global equity market, but it does not represent the entire investment opportunity set.
Developed international markets and emerging markets also represent meaningful portions of the world’s publicly traded companies.
At AIO Financial, our approach is to diversify equity exposure across the global market rather than relying entirely on a home-country bias.
That generally means exposure to:
U.S. equities
Developed international equities
Emerging-market equities
The objective is not to make a tactical prediction that one geographic region will outperform another.
Instead, the allocation reflects the broader global distribution of investable companies.
This helps reduce the risk of concentrating a client’s wealth in the economic fortunes of one country.
Why Global Diversification Can Matter Even More for Expats
Global diversification can be especially important for clients living outside the United States.
An expat may already have substantial exposure to the economy of the country where they live.
That exposure might come through:
Employment
Real estate
Business ownership
Local currency
Pension benefits
Local banking relationships
If the investment portfolio is also heavily concentrated in that same economy, the client’s financial life can become overly dependent on a single country.
A globally diversified portfolio can help spread that risk.
Using Broad, Low-Cost Index ETFs
We generally implement the equity portion of portfolios using broadly diversified, low-cost index ETFs.
These can provide exposure to thousands of companies across multiple countries and market segments without requiring us to select individual stocks.
The benefit is straightforward.
Rather than attempting to identify which individual companies will outperform, we can own broad portions of the market.
This typically results in an equity allocation that remains weighted toward the United States while also maintaining meaningful exposure to developed international and emerging markets.
Again, the goal is not to create an arbitrary split.
The allocation is designed to reflect the broader global investment opportunity set.
Pillar 3: Non-Correlated Assets Need Active Rebalancing
The third part of the strategy involves assets that do not always move in the same direction as stocks.
Examples include:
High-quality bonds
Gold
Other diversifying assets
These assets can help reduce portfolio volatility because their performance may differ from equities during certain market environments.
But simply owning them is not enough.
Their real value comes from rebalancing.
Why Rebalancing Matters
Suppose the stock market falls significantly.
At the same time, bonds or gold may hold their value better.
The portfolio may then become overweight in bonds or gold and underweight in equities relative to its target allocation.
If nothing is done, that shift simply remains in place.
Rebalancing creates a disciplined response.
We may sell part of the asset that held up better and use the proceeds to buy more of the asset that declined.
In practical terms, that can mean:
selling relatively high and buying relatively low.
This does not require predicting when the market will bottom.
It simply means returning the portfolio toward its intended allocation.
That discipline is what allows diversification to become an active part of portfolio management rather than simply a collection of different investments.
Correlations Change Over Time
It is also important to understand that no asset is perfectly non-correlated with stocks all the time.
Gold has historically acted as a useful diversifier during many equity-market declines.
But during periods of extreme financial stress, investors may sell almost everything in order to raise cash.
That happened briefly during the 2008 financial crisis and again during the market turmoil of March 2020.
Bonds can also behave differently than investors expect.
In 2022, for example, stocks and bonds both fell as interest rates rose sharply.
The lesson is that diversification does not eliminate risk.
It changes the way different risks interact inside the portfolio.
How Often We Rebalance
At AIO Financial, portfolio rebalancing is generally connected to scheduled client meetings.
For many clients, that means approximately three or four times per year, with three being common.
This allows us to review the portfolio at the same time we are reviewing the client’s financial situation.
Before making trades, we can consider upcoming:
Contributions
Withdrawals
Spending needs
Cash requirements
Tax considerations
Whenever possible, new cash flows can be used to help bring the portfolio closer to its target allocation.
That can reduce the number of trades required.
What Happens Between Scheduled Meetings?
Markets do not always wait for the next meeting.
A sharp market movement can push part of a portfolio meaningfully away from its target allocation.
When that happens, we may reach out to a client and rebalance before the regularly scheduled review.
The purpose is not to react to every daily market movement.
It is to respond when an allocation has moved far enough from its intended target that the portfolio no longer reflects the risk profile it was designed to maintain.
Taxable Accounts and Retirement Accounts Are Different
Rebalancing also depends on the type of account.
Inside an IRA or other tax-deferred account, buying and selling investments generally does not create an immediate capital-gains tax liability.
That gives us more flexibility when rebalancing.
Taxable brokerage accounts require more care.
Selling an appreciated investment can create taxable capital gains.
For that reason, we may:
Use new contributions to correct an allocation
Direct withdrawals from overweight positions
Avoid unnecessary taxable sales
Coordinate trades with tax-loss harvesting opportunities
The target allocation matters, but so does the tax cost of getting there.
Socially Responsible Investing: Engagement Instead of Only Exclusion
For clients interested in socially responsible investing, our approach goes beyond simply screening companies out of the portfolio.
Traditional SRI often works through exclusion.
An investor may decide not to own companies involved in industries such as:
Tobacco
Fossil fuels
Weapons
Gambling
Other areas that conflict with their values
That approach can be appropriate for some investors.
However, selling a company’s shares does not necessarily change the company’s behavior. Those shares simply become owned by someone else.
For that reason, we also focus on shareholder engagement.
When choosing between funds with similar investment characteristics, we may favor managers that actively engage with the companies they own.
That engagement can include:
Proxy voting
Shareholder resolutions
Communication with company leadership
Pressure related to environmental practices
Social issues
Corporate governance
The philosophy is that ownership can create a voice.
Rather than always walking away from a company, an investor may sometimes have more influence by remaining a shareholder and using the rights that come with ownership.
SRI Should Not Be “Set It and Forget It”
Values-based investing also requires ongoing review.
Companies change.
Investment funds change.
Management practices change.
A fund that aligned well with a client’s priorities several years ago may no longer be the best fit.
For that reason, socially responsible portfolios should be reviewed and rebalanced just like any other portfolio.
The goal is to make sure that both the financial allocation and the values alignment continue to make sense.
How We Build the Equity Buy-Sets
Within the equity portion of the portfolio, we also consider the distribution of investment styles and company sizes.
Our buy-sets are not constructed by giving equal weight to every category.
Instead, they are designed to reflect how the global market itself is distributed.
That means our equity exposure may contain:
More growth than value
More mid-cap than small-cap
This is not intended as a tactical bet that growth stocks or mid-cap stocks will outperform.
It reflects their relative presence within the investable market.
Growth companies currently represent a larger portion of global market capitalization than value companies.
Mid-cap companies also represent a larger and generally more investable portion of the market than small-cap companies.
The broader philosophy remains the same:
Let the structure of the global market guide the allocation rather than trying to predict which style will outperform next.
Putting the Strategy Together
Each part of the portfolio has a different job.
The risk-based model determines how much of the portfolio should be allocated toward growth versus more conservative assets.
The global equity allocation determines how that equity exposure should be distributed across world markets.
The non-correlated sleeve provides diversification.
And rebalancing provides a disciplined process for responding when markets move.
None of these components is especially powerful in isolation.
Together, however, they create a portfolio designed to:
Match the client’s time horizon
Reflect the client’s risk tolerance
Diversify across global markets
Reduce unnecessary concentration
Incorporate tax considerations
Adapt as the client’s circumstances change
Use market volatility as an opportunity to rebalance rather than something that must simply be endured
Our objective is not to predict the next downturn or identify the next market winner.
It is to create a disciplined investment process that can be followed through changing markets and changing stages of a client’s life.
That consistency is ultimately the foundation of our investment strategy.
This article is provided for general informational and educational purposes only and does not constitute personalized investment, tax, or legal advice. Investment allocations depend on each client’s individual circumstances, including time horizon, risk tolerance, tax situation, residency, and financial objectives. All investing involves risk, including the possible loss of principal.