Investment Philosophy

Investment Philosophy

Our portfolios are specifically designed for each client.  Just as no two clients are the same, no two portfolios are exactly the same either. Our goal when designing a portfolio for a client is not to maximize short term returns.  Rather, our goal is to design a portfolio that will enable a client to meet their specific, long range goals.  Along those lines, we may have two clients who are similar in age and have similar size portfolios but their overall allocations may be quite different. Our definition of the optimal portfolio is one that a client can stay with in good times and bad.  

We are an approved DFA provider (read more about DFA by clicking on the link to the right) and all portfolios are designed with the following investment philosophy in mind:

Markets Are Efficient

We feel that markets are generally very efficient – that is, that prices reflect the knowledge and expectations of all investors.  Prices may not always be "correct" but there is very little opportunity for a single investor to profit from any pricing discrepancies that might momentarily exist.

Because we believe that markets are efficient, our portfolios are passively oriented and we tend to use a lot of low-cost, no load index funds.  Our goal with equity investing is to capture the returns of the market but in a low cost and tax efficient manner.

Markets Cannot Be Timed

The biggest mistake most investors make is thinking that they can predict what the market is going to do.  As Peter Lynch once said “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections than has been lost in the corrections themselves”.

We work with clients to develop portfolios that are well diversified across the major asset classes.  Portfolios need enough equity exposure to ensure gains in good markets and enough fixed income exposure to limit declines in bad markets.  The exact allocation depends entirely on the client’s specific goals.

Risk and Return are Related

In simple terms, stocks have higher expected returns than bonds.  So investors who allocate more of their portfolio to stocks should see higher returns than investors who allocate more of their portfolio to bonds.  And building on this observation, numerous academic studies have shown that small company stocks generally outperform large company stock and value stocks generally outperform growth stocks.  Consequently, we frequently “tilt” portfolios towards small company stocks and value company stocks.

Diversification is Key

One of our favorite charts is the “Periodic Table of Index Returns”. This chart shows the performance of twelve major asset classes over the past fifteen years. The chart is interesting because no one asset class is always at the top (or always at the bottom) and in many years, the asset class that performs the best in one year is the worst performer in the next year. Our take-away from this chart is that there is no way to accurately predict which asset class is likely to perform the best. As a result, we design portfolios that are well diversified and we tend to stick with them.  

Controlling Costs is Critically Important

Mutual funds levy fees on the investors who buy shares in their funds.  Sometimes those fees can exceed 2%.  While those fees may be justified for certain types of funds, in the vast majority of the cases, the higher fees simply enhance the mutual fund’s bottom line.  We make it a point to use funds with very low expense ratios wherever possible and we often have access to institutional share classes for funds.

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