When Lane Steinberger joined Raj Chokshi, Shawn Meade, Larren Odom, Brian Huey and Traci Martin to form Redwood Wealth Management,  one of the premier wealth management firms in the Southeast was created.

While all Redwood's clients have at least one wealth manager assigned to them individually, the firm boasts experts in investments (1 CFA), tax (2 CPAs), insurance, and wealth management (4 CFPs).  In addition, every wealth manager at Redwood holds a post-graduate degree including 4 MBAs.

The ability to leverage this type of intellectual capital is rare among those offering advice in the financial services industry and we believe the "team of experts" approach offers a competitive advantage to our clients.

Lane joins Redwood as the Chief Investment Officer, bringing with him his experience managing the portfolio allocation of the Bell South $20 billion pension fund.

Raj Chokshi and Shawn Meade are the firm's tax experts, both having extensive experience working at the Big Four accounting firms. As taxes are most people's largest single expense, the knowledge Shawn and Raj bring in reducing our clients' tax burdens provides tremendous value.

Larren Odom has 14 years of experience in insurance and is an expert in identifying risk and designing solutions to help clients protect both their existing wealth and the well-being of their famiy.

Brian Huey and the aforementioned Lane Steinberger are the primary investment team responsible for the design and implementation of the firm's investment strategy.

 
In addition to Lane's experience managing the $20 billion Bellsouth portfolio, he is also a Chartered Financial Analyst, the highest designation of portfolio managers.

 As a Commander in the United States Navy Reserve, Brian pilots the E-2C Hawkeye several times a year and has extensive experience as a Business Analyst in the telecommunications industry. Brian holds an MBA and is working to complete the requirements to earn his Certified Financial Planner™ designation.

With the economy faltering, many people are beginning to discern the difference between a true wealth manager and a sales-oriented "advisor".

While some firms falter, Redwood continues to grow. Our clients include the owners of 7 of Inc. Magazine's 500 Fastest Growing Companies as well as top professionals from the medical, legal, and accounting practices in the Southeast.  
The new firm remains completely independent and fee-based which will ensure our clients receive advice that is unbiased and has their best interest at heart. By only working with a certain client profile going forward in 2009, Redwood is positioned to offer personalized solutions to our clients designed by a team of experts. 

With the alleged theft committed by Bernie Madoff affecting so many affluent and sophisticated investors, many people may wonder what prevents their advisor from doing the same to them.

However, there is a key difference between the way Madoff did business and the way Redwood handles client accounts, namely,  Redwood never takes custody of their client's money.

Madoff was allegedly able to deceive his clients for so long because he or his company took actual custody of the money.  Clients would write checks to Madoff's company and he did with it whatever he saw fit.

Clients were denied on-line access to their accounts and had no direct contact to their money. [1] The only knowledge of how their money was invested came from the periodic statements, generated by Madoff's company, which could potentially say anything he wanted them to. The statements showed nothing but consistent returns while in actuality the money had, allegedly, been lost or stolen.

By contrast, when a client of Redwood invests money they make checks payable to Fidelity, one of the largest mutual fund companies in the world, and an independent and distinct entity from Redwood Wealth Management.

Fidelity has custody of all client money and our clients receive monthly statements, generated by Fidelity not Redwood, showing the exact value and investment positions of their accounts.

Our clients are also free to log on to their account at anytime to see exactly where their money is.

 

Our CPAs keep abreast of the constantly changing tax laws to make sure our clients keep more of what they earn. Here are two changes to the tax laws for 2009:

 
I want to first start by saying our allocations are based on long term historical trends. Thus, we do not typically try to time the market by picking individual stocks.  The futility of this strategy is evidenced on the pages of so many 2008 brokerage statements holding the ticker symbols AIG, LBC (Lehman Brothers), and (CFC) Countrywide Mortgage.

Instead we devise a disciplined investment strategy using a well diversified global portfolio and rebalance to a strategic allocation on a set schedule.   It is a strategy that has worked throughout history and will reap rewards over an extended period of time. 

However given the current market conditions,  I think the likely long-term scenario will be similar to the early 70's, when the market dropped substantially and took several years to recover. Here is an excerpt from my previous newsletter explaining how our strategy, a broad allocation of global stocks and bonds rebalanced on a set schedule, would have fared in such a market:

 

 

While there is obviously no guarantee that the next 10 years will be similar to this period, there are similarities to the current economic situation. Regardless, our investment strategy should prove effective in most market environments.

The advisors at Redwood constantly monitor the micro and macro economic trends and may overweight and underweight certain asset classes based on the current market situation. The economic environment has changed dramatically over the course of the year and we have several observations we want to highlight.

Inflation:  The Fed and Treasury are expected to spend over a trillion dollars to stimulate the economy over the next year.  While I believe in free markets and do not typically like government involvement, I do believe in extreme circumstances like this we need to pump the economy with money to stave off a depression.  However, the downside to printing money, as we have seen throughout history, is the threat of inflation.  Thus, we want to have assets in our portfolio that will hedge against a hyperinflationary environment, while also offering a sufficient return and diversification benefits.  Given this, we have an over-allocation to Treasury Inflation Protected Securities (TIPS), in addition to Real Estate Investment Trusts (REITs), and in some cases commodities.

US Large company stocks versus US small company stocks:  Small company stocks have historically offered a higher return over large company stocks.  Our typical portfolio has an equal weight toward US small and US large company stocks.    However, large company stocks have dramatically underperformed over the past 10 years.  From 1998-2008, the S&P 500 lost over 1% a year, while small cap stocks increased over 3 % a year. This leads us to overweight US large cap stocks in our portfolios.

*In our international equity portfolio we take a slightly different approach.  In this asset class, large cap foreign stocks tend to be highly correlated with US large cap stocks.  Thus, we overweight international small caps and emerging market stocks since they offer better diversification benefits. 
 
Low interest rates: In all our portfolios, we spread risk among domestic and foreign equities, large and small companies, growth and value stocks, etc.  This helps  to reduce price volatility in the portfolio but we also need to use fixed income (bonds) to help minimize risk.  Our expectation for fixed income is to perform well when equities do not.  Thus, the overall bond portfolio will always favor high quality short-term instruments.  We favor short term bonds over long term one since it is our belief that longer maturity bonds do not provide adequate return for the risk.  For example, since 1964, a five-year treasury has provided basically an equivalent return as a 20 year government bond but with almost half the risk.*  In addition, with the interbank borrowing rate at 0% and a potential inflationary environment in the years to come, interest rates have nowhere to go but up.    Thus, we are maintaining a short maturity bond portfolio to give you some protection you in this environment. 
 
Corporate bonds:  Bonds and other credit instruments have suffered along with stocks in this downturn.  However, the suffering has been unprecedented and investors have demanded record high rates on debt.  Yield spreads on corporate bonds are the highest since the great depression - the Barclays short-term credit index is yielding around 5% more than the treasury index.  Given this situation, we will have more corporate bonds than usual in the portfolio.

 

*January 2005, Dimensional Fund Advisors, Fixed Income Investing, David A. Pleca