Accounts managed in-house are implemented with stocks, bonds, and mutual funds utilizing an asset allocation approach as described below.

Simply stated, asset allocation is the process of selecting a mix of asset classes and the efficient allocation of capital to those assets by matching rates of return to a specified and quantifiable tolerance to risk. Risk tolerance is essentially the percentage of an investment portfolio that an investor is willing to risk in order to achieve a specific rate of return. It is no longer a one-dimensional process fo selecting the right stock, bond or property to place in a portfolio. Deckert Financial Management, Inc. uses Modern Portfolio Thory Methods. These methods have as their foundation four basic premises.

The first premise is that investors are inherently risk-averse. Inverstors are not willing to accept risk except where the level of return generated will fairly compensate for that risk. It is probably reasonable to assume that investors are more concerned with risk than they are with rewards. The problem in the past has been to quantify risk and its relation to return.

The second basic premise is that the markets are basically efficient. As discussed above, most studies support this concept. With the advance in information technology and more sophisticated investors, the markets are likely to become even more efficient.

The third premise is that the focus of attention should be shifted away from individual securities analysis to consideration of porftolios as a whole, predicted on the risk-reward parameters and on the identification and quantification of portfolio objectives. Today it is more likely that the efficient allocation of capital to specific asset classes will be far more important than selecting the 'right' components of the asset class. A study by Merrill Lynch in 1979 showed that in a typical, diversified investment portfolio, diversification eliminates so much of the specific risk that roughly 90 percent of all the portfolio risk is market risk and only 5 - 7 percent is specific risk. Specific risk is the risk associated with a specific issue (stock, bond, or property). In another study by three leading financial analysts it was determined that on average 93.7% of the variability in the risk and return of a portfolio could be explained by the asset allocation policy. These studies have dramatically supported the concept that sset allocation is the primary determinant of portfolio performance, with market timing and security selection playing minor roles.

The fourth and final premise of Modern Portfolio Theory is to optimize portfolio return in relation to portfolio risk. In other words, for any level of risk that one is willing to accept, there is a rate of return taht should be achieved. Quantitive methods are used for measuring risk and diversification, making it possible to create efficient and theoretically optimal portfolios. Portfolio diversification is not so much a function of how many issues are involved, as it is of the relationships of each asset mixed with the proportions each asset is allocated in the portfolio. In other words, investors should search for those assets which tend to have a negative relationship to each other, and should invlude assets which go up in value as the value of other assets decline.