Our investment philosophy incorporates many of the principles of “Modern Portfolio Theory.” This theory has been thoroughly researched and supported for decades by leading financial academics, including several Nobel Prize winners. The investment management strategy is based on several fundamentals, including:

  • Market efficiency – The theory states that the securities markets are fairly “efficient,” although not always rational. This means that the price of financial assets reflects all information publicly available. Therefore, it is impossible to know ahead of time the next direction of the market as a whole. From an investment perspective, the theory implies that investors cannot consistently out-perform the overall market by conducting “active” investment strategies. “Active” investment strategies include attempting to “time the market” and conducting “stock picking.”

  • The importance of asset allocation – The theory states that the construction of an investment portfolio as a whole is more important than individual security selection. The appropriate investment allocation across asset classes (e.g., stocks, bonds, cash) will have far more influence on long-term portfolio results than the selection of individual securities.

  • Long-term investing – Investing for the long-term, preferably longer than ten years, becomes critical to investment success because it allows the long-term characteristics of the asset classes to surface.

  • Evaluating portfolio risk – Risk is the uncertainty regarding future returns (or losses) on an investment. Risk is a critical component of investing and creating portfolios. The theory states that investment portfolios can be created and tailored to a level of expected risk. Over long periods of time, there is a relationship between the level of risk assumed and the return that can be expected in an investment program.

  • Benefits of diversification – The level of risk can be reduced by increasing the diversification (types and number of securities) in a portfolio without significantly changing the portfolio’s overall expected return.

  • Asset location – Matching investments with different tax treatments and available account types can result in more favorable after-tax returns (e.g., some investments are better held in a taxable account while others best held in a tax deferred account like an IRA).

  • Expenses matter – Investment costs are inevitable, but minimization of investment costs and taxes can enhance long-term performance.

Based upon this underlying investment philosophy, we create a customized investment strategy for each client following a systematic process refined over the past twenty years (read more about our Investment Process).

 

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