Our Investment Philosophy

There's no single concept that will yield success for every investor. At The Melges Group, we call upon our collective experience and expertise to provide solutions as unique as you are.

While we are flexible and innovative, our guiding principles are firmly rooted in our core beliefs regarding asset allocation, risk management and securities selection.

A focus on dividends

Dividends and income-paying securities are the primary focus of our portfolios. In our cash flow management portfolios, the main objective is to create the potential for steadily rising income for our clients. Being able to generate the income necessary to offset distributions that a portfolio may experience over time can help reduce portfolio risk and the potential drawdown of principal.

Dividends are not guaranteed and will fluctuate.

The Melges Group of Raymond James - Jon Melges "Retirement is about cash flow. Your paycheck stops on your last day of work, but your income needs remain. This can be emotionally daunting for a lot of people. Our cash flow investment approach is designed to help replace that paycheck and give you more confidence while pursuing your retirement goals." – Jon Melges

Our covered calls strategy

As we help our clients pursue their individual investment goals, we may incorporate the technique of covered call writing. This represents a specific way of using options to manage risk and hedge individual positions or entire portfolios. Covered calls are often used when an investor wants to generate additional income beyond dividends from the underlying stock, and/or gain a limited amount of protection against a decline in the stock's value.

Covered call writing involves the simultaneous purchase of stock and the sale of a call option – also referred to as a "buy-write" strategy – or the sale of a call option covered by underlying shares currently held by investors in their brokerage accounts.

The objective of covered calls is to generate income because the writer receives a cash premium for writing the call. However, the writer will be obligated to sell the stock at the call's strike price if assigned; as a result, the writer gives up the chance to benefit from any appreciation above the strike price, and the sale of shares due to assignment may result in a taxable gain.

Because covered call writing decreases the risk of stock ownership, it is compatible with our conservative, results-oriented investment philosophy. We have extensive experience incorporating this technique in managing our clients' investments. If you would like to learn more about covered call writing and whether it may be an appropriate strategy for your portfolio, please contact us.

Generating income from covered calls does not provide protection from significant downward price movement. Downside protection is limited to the amount of premium received from the sale of the covered calls.

Options trading involves risk and is not suitable for all investors. Options should comprise only a modest portion of a portfolio. Prior to making any options transactions, investors must receive a copy of an Options Disclosure Document titled "Characteristics and Risks of Standardized Options." This document can be obtained from our office by clicking here.

Investors should consult with a tax advisor to determine how taxes may affect the outcome of the above strategy.

Asset allocation

Asset allocation is a key component of our portfolio management decisions. Determining the appropriate asset allocation based on your unique risk and return objectives is perhaps the most critical contribution toward the long-term success of any investment program. Rather than a one-time decision, asset allocation is a key component of our ongoing process.

Asset allocation does not ensure a profit or protect against a loss.

Strategic allocation

This is the long-term target for how your assets are divided between stocks, bonds and cash.

Tactical allocation

As market conditions change, so do we. When we think the markets pose excessive risks, we may make a tactical adjustment to your allocation designed to reduce market exposure and increase cash. We utilize technical indicators to adjust the stock/bond ratios within the portfolios and to manage hedges, in an effort to reduce risk or enhance returns.

Risk management

Managing risk is integral to long-term wealth creation and preservation. We work closely with you to understand your goals and discuss what it will take to help achieve them. Our goal is to design an investment portfolio closely aligned with your long-term investment objectives and reflective of your risk tolerance.

Our objective is to avoid taking more risk than we believe is necessary to attain your long-term goals. This means that our approach for clients with sufficient lifetime wealth will differ from strategies for those who need to plan for their future income needs. It also means that we have the flexibility to transition your portfolio to a different strategy as your needs evolve over time.

Securities selection

Our analysis methods include asset allocation analysis and portfolio modeling, in addition to individual security research. We select asset classes from the top down, then pick stocks from the bottom up. This means that our view of the economy and individual economic sectors shapes our strategic asset allocation decision, while in-depth analysis of the investment candidates within these favored sectors guides our stock selection process.

We incorporate both qualitative and quantitative securities analysis with respect to individual stock and mutual fund selection. (Quantitative analysis focuses on mathematical and statistical research such as the debt-to-equity and price-to-equity ratios. Qualitative analysis uses subjective judgment to evaluate information such as management expertise, industry cycles, labor relations and other factors not generally identified through quantitative analysis.)

Our goal with respect to fixed income asset selection is to create a portfolio that seeks to optimize income, enhance the appreciation potential of the portfolio and manage downside risk. We identify those asset classes exhibiting strategic value to develop the core portfolio. These core holdings are complemented with additional securities to provide diversification and/or alternative income. We seek to diversify our fixed income holdings across various sectors that have the potential to perform well in the present interest rate cycle.

Our team incorporates both independent and proprietary research and opinions with our own internal qualitative and quantitative analysis. Resources include independent and proprietary economic, market, sector and individual securities analysis, and subscription services that provide a wide range of sell-side analysis of market sectors and individual securities. (Value Line, Credit Suisse, Standard & Poor's)

There is no assurance that any investment strategy will be successful. Investing involves risk and investors may incur a profit or a loss. Asset allocation and diversification do not ensure a profit or protect against a loss. Past performance is not indicative of future results.