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| Scenario Planning |
A Family Way
Rosario J. Ruffino, M. Cullen Thompson and Justin McCarthy
11/01/2007
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Commodities are inflation-hedging by nature and are driven by
different fundamentals (supply and demand) than stocks and bonds, and therefore
they contribute meaningfully to diversification. Real estate investment trusts
(REITs) and commercial real estate securities also benefit from strong global
growth, low unemployment and higher incomes, along with the additional benefit
of low historic correlations to both equities and residential real estate.
Because real estate appreciation is a highly localized phenomenon, global
diversification is paramount. Value creation within private equity can
contribute to enhanced portfolio returns, whereas a properly constructed hedge
fund portfolio, one that is composed of managers that can profit during market
dislocations and volatility, has the potential to reduce market exposure and
overall portfolio volatility, which then allows for the faster compounding of
wealth.
• 20 percent hedge funds, fund of funds, private equity
• 5 percent commodities
• 5 percent REITs (globally diversified)
Rosario J. Ruffino, CPA, CFP, M. Cullen Thompson, CFA, and
Justin McCarthy are with RR Advisory Group in New York.
 The goal of Scenario Planning is to spark discussion on asset management and portfolio
realignment with your financial professionals, not to provide advice. Each
month, the editors of Worth choose a case study and respondent.
Working with a wealth advisor involves an in-depth process that we cannot
replicate in this space. No financial advisor can provide comprehensive counsel
without a thorough and ongoing dialogue with you about your goals as your life
changes, so let this serve as an exercise to open that discourse. This example
is for illustrative purposes only, and readers should not attempt to coordinate
their situation with the given paradigm.
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