Market Mover: An 1,800-Year-Old Plan

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By Bryan Borzykowski

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If you’re one of those investors who’s enjoyed the stock market run of the past five years but is getting concerned about lofty valuations, John Nicola has a The chairman and CEO of Vancouver-based Nicola Wealth Management stands by an asset allocation formula put forward by rabbis more than 1,800 years ago. There’s a paragraph in the Talmud, a Jewish text written in 200 CE, that says people should put one third of their money in land, one-third in commerce and one-third “at hand.” In today’s vernacular, that’s 33% in real estate, 33% in equities and 33% in cash or fixed income.

While investing has become far more complicated over the centuries, that ancient method still applies, says Nicola, whose firm manages nearly $3 billion in assets on behalf of its wealthy clients. “There are sophisticated money managers who continue to use this asset-allocation approach,” he says. “And there’s a lot of data that says it works.” Nicola’s Core Portfolio, essentially a balanced found, follows this philosophy and, since its inception in July 2013, has returned 104%.

It might have done better had Nicola put 60% of his clients’ money in equities and 40% in fixed income like most money managers. But he’s not trying to shoot the lights out. “Ours is a totally different view on the way asset allocation should be done,” he says. High-net-worth investors aim to preserve as much as grow their piles. The Core Portfolio is highly diversified, holding mortgages, preferred shares, foreign bonds, alternative strategies, real estate and more. That helped protect his clients during the recession. Nicola says his average client lost just 6.5% in 2008.

This investment approach wasn’t born of some late-night religious epiphany, but rather from years of trial and error. When the former bass player realized rock ‘n’ roll stardom wasn’t in his future, he, along with his band’s lead singer joined a firm that sold insurance. It was 1974, and he made $600 a month. “That was good money for a job where you didn’t know  what you were doing,” he laughs. Within six months he became the branch’s top salesman.

In 1978, when Nicola was 26, he joined another firm that sold guaranteed investment certificates, just as interest rates were rising. It was there that he became interested in retirement planning. “Every client has a need for retirement-income planning, even if they’re not already retired,” he says. “They need to hit their targets.” In 1984, his company merged with Rogers Group Financial, a West Coast wealth management powerhouse, and it was there that he learned the ins and outs of portfolio management.

Through it all, Nicola became more convinced of the wisdom of the Talmudic approach. With stocks more expensive than they have been in years and interest rates poised to rise, he suggests making some adjustments to your portfolio. Over the past 12 months, he has reduced his equity exposure by 4% and allocated more money to short-duration bonds. It’s unlikely stock returns will be as spectacular as they have been since the crisis, he says. Buy solid, dividend-paying companies, and total returns should make up for slower gains.

While Nicola thinks other advisers would be well-served by his method, he knows it won’t happen. Publicly traded stocks are easy to buy and sell. It’s harder to build a portfolio of mortgages and real estate, but there are benefits. “By having other asset classes, we don’t have to take the risk of market exposure and worry about whether this year will be a good one for stocks,” he says.

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