Thinking about correlation, volatility and growth for each building block
At East Franklin Capital, we know that the odds are stacked against us (or any investor for that matter) to find the next “big stock”. We don’t build portfolios based on what’s trending on financial news networks and we certainly don’t make investment decisions based on what a single data point like a Twitter (er, X) post, or your golf buddy, or even your favorite news show might tell you. Our job—our mission, really—is to build portfolios that work for each client’s goals… and the long haul. That starts with one deceptively simple principle: balance.
Now, when most people hear “balanced portfolio,” they think ‘yeah, yeah, we get it.’ It is often seen as standard terminology and the dull edge of the investing blade. But balance is far from boring. In fact, it’s the very thing that allows our clients to endure market storms and enjoy market sunshine. Let’s break down how we think about portfolio construction—and why the right kind of balance isn’t just helpful, but essential.
A Couple of Pillars of Sound Portfolio Construction
Diversification by Design
The old saying “don’t put all your eggs in one basket” still holds true—though I’d argue it needs an upgrade. It’s not just about having multiple baskets; it’s about making sure your baskets don’t all fall off the same shelf when the market sneezes. And, while it is true that substantial wealth can be built on a concentrated (often single stock) portfolio… that “strategy” can lead to NO wealth creation or loss of the wealth that may have been on paper at one time.
We structure portfolios across a wide array of asset classes, geographies, and investment types—because history shows that different assets respond differently to market forces. U.S. equities may roar while international stocks lag. Real estate might stumble while commodities shine. The goal isn’t to predict the winner. It’s to own a mix that, over time, compounds steadily while cushioning the ride.
Purposeful Asset Allocation
This is where the real art and science come in. Asset allocation—the mix among equities, fixed income, and other asset classes—isn’t about guesswork. It’s about aligning with each client’s goals, time horizon, and risk tolerance, and risk capacity. We think about why you’re investing—retirement income? Generational wealth? Beating inflation?—and then structure the portfolio accordingly. And, if those “why’s” change, so too might your portfolio.
Equities have long proven to be an effective hedge against inflation. Over decades, the growth potential of stocks tends to outpace rising costs, preserving (and ideally growing) purchasing power. But let’s be clear: stocks can be volatile. Which is why our steady friend high-quality fixed income is there to keep us in the game.
Equities Are About Growth… Fixed Income Is About Footing
Fixed income doesn’t get the glamour treatment… and for good reason. No one brags about their bond ladder at cocktail parties. But bonds are often in the role of anvil in a portfolio. While equities offer growth, the right fixed income often helps reduce overall volatility—smoothing the ride when markets get rocky.
In fact, many investors rediscovered the value of bonds when equity markets threw their latest tantrum. High-quality fixed income can serve as a ballast, providing stability, income, and downside protection—often felt even more poignantly for those drawing from their portfolio or approaching retirement.
Measuring Risk: Not Just a Gut Feeling
Too often, risk is discussed like it’s a vibe. At East Franklin Capital, we believe risk should be measured, not merely felt. Incorporating risk metrics—like standard deviation, beta, max drawdown, and correlation—allows us to look under the hood of a portfolio and understand how it might behave under different conditions. This quantitative insight helps us do three key things:
Align expectations (so clients aren’t shocked when markets shift),
Avoid overexposure to any single risk factor,
And preserve capital when preservation matters most.
Because let’s face it: the only thing worse than losing value in your account is not understanding why you lost it. We are investing, after all, and losses are going to happen, but surprises should be far more rare.
Investing in a World That Doesn’t Sit Still
We live in a world where headlines swing from euphoria to panic in a single day. One tweet can shake the markets. One data point can send shockwaves. And yet, through it all, the fundamentals of long-term investing haven’t changed. At East Franklin Capital, our goal isn’t to outsmart the market on a daily basis. It’s to outlast the market’s mood swings and position our clients to benefit from long-term trends while weathering short-term noise.
Probably my favorite investment quote of all time is attributable to Warren Buffett and it goes: the stock market is a device for transferring money from the impatient to the patient. That’s it! We aren’t going to be “right” all the time but we aren’t trying to. We are looking to achieve financial goals and use the financial markets as a means to that end. And we will be patient in getting to that end.
Balance isn’t just a philosophy—it’s our strategy for navigating a world that refuses to sit still. By combining diversified portfolio construction, intelligent asset allocation, and risk awareness, we’re helping clients preserve their wealth, pursue meaningful growth, and sleep a little better at night.
Because in investing, as in life, balance is what keeps you standing—even when the world wobbles.
