Wealth Management | Participants | Financial Planning | Advice Topics | Investment Strategy

Investment Strategy

Our Investment Strategy is designed to help clients reach their goals — e.g., retirement funding, college funding, passing on a legacy, etc. Chasing short-term performance, trying to time the market, looking for the next "hot" investment have almost no connection to what we do for our clients and are losing long-term investment strategies.

Additionally, there are many factors that have an impact on client portfolios that we simply cannot control, such as the state of the economy, value of the stock market, tax rates, interest rates, inflation rate, government regulation, and future major social, political and cultural events. And, while it would be great to have a crystal ball to be able to predict these things, no one can consistently predict the future.

So, as we work with clients, we focus our attention on the factors we can (mostly) control. Instead of timing the market, trying to guess when the next correction will occur, we are focused on "time in the market," taking advantage of the long-term upward trend of the market.

Factors We Can (Mostly) Control



Shared Belief in Free-Market Capitalism — The Engine

Train EngineBelief in free-market capitalism operating in a democratic society is central to all we do for our clients. It is not a perfect system, but it is the best option available and is the engine that drives our investment strategy. Over the long haul, the free-market approach has consistently created a growth of wealth. (See Market Commentary.)

Since World War II, there have been eleven bull markets, which have averaged 6.2 years in length. The market high for every single bull market has been higher than all previous highs. To be sure, bear markets are an ever-present and necessary part of a free-market system. But, the market trend has always been upward. That upward trend — driven by free-market capitalism operating in a democratic society — is what we are betting on!

Collaborative Planning — Staying On Track

If belief in free-market capitalism is the engine that drives our investment strategy, planning is what keeps the strategy on track. We work with clients to plan for the future (in contrast to being depressed about the past and/or being anxious about the future). We develop a sound financial plan, implement it, monitor it, make corrections and repeat.

As part of the planning process we work with clients to determine their risk tolerance and time horizon for every goal and every account.

Client Disciplines — The Fuel

If a free market is the engine that drives our investment strategy and planning keeps the engine on track, then client disciplines are the fuel that keeps the engine going.

Clients' actions over a lifetime have a huge impact on long-term portfolio value. Many people spend 35 plus years in the workplace and it is becoming more and more common to spend another 20 plus years in retirement.

So, although we help the client plan for the future, the client has primary control in the area of discipline. Spending, saving, sticking with the plan, retirement plan contributions and life-style choices are very important factors in a successful long-term investment plan.

  1. Spending. Oftentimes, there is a conflict between spending today and saving for tomorrow. Investing for the long-haul requires a balance between satisfying needs/wants/desires today and saving for the future.
  2. Saving. Regular savings for short-term goals and emergency fund.
  3. Staying in the market. Sticking with an investment plan, even during a bear market … especially during a bear market.
  4. Retirement plan contributions. Life-long contributions to retirement accounts (e.g. 401k, 403b, IRA, Roth, etc.) are an essential part of retirement funding for most people.
  5. Life-style choices. We all make choices every day regarding our lifestyle and finances. Over a lifetime, these choices are an important determinant of success in reaching our long-term financial goals.

Wealth Management Best Practices — The Engineer

Train EngineerIf a free market is the engine that drives our investment strategy and planning keeps the engine on track and client disciplines are the fuel that keeps the engine going, wealth management best practices serve as the engineer to guide the train and get it to its destination.

  1. Track the market. We primarily use index funds to track the market in client portfolios. The research shows that beating the market with active management is very rare over the long haul. Our goal is to match the market indexes in a risk-adjusted fashion. Occasionally, we use actively managed funds for unique situations or when an index fund is not available for a given market sector.
  2. Manage asset allocation. According to the research, strategic (long-term) asset allocation, also known as investment policy, is the number one determinant of long-term returns. We determine an asset allocation between stocks, bonds and cash that most closely matches the client’s unique profile. Factors used to determine asset allocation are: investment objectives, investment time horizon, risk tolerance, life stage, investment experience and knowledge, income, net worth, employment status, tax bracket, source of funds and personal preferences. For the most part, we do not use tactical (short-term) asset allocation, also called market timing, which is the decision to deviate from the strategic asset allocation in the near-term. Neither do we utilize security selection, which is the active management of securities within an asset class.
  3. Minimize investment expenses. The research shows that, after asset allocation, expenses are the next most important determinant of long-term returns. So, we design portfolios using investments with low expense ratios and work at minimizing trading costs.
  4. Diversification. Diversification in the stocks and bonds of a broad array of companies worldwide. Said in another way: don't put all your eggs in one basket. The typical portfolio we manage has the stocks and bonds of over 8,000 companies worldwide.
  5. Consolidation. Where feasible, we consolidate accounts with like registrations. Let's say for example that you have one IRA at Fidelity and one at Schwab. We would likely combine the two IRAs into one IRA at our custodian.
  6. Minimize complexity. We work with clients to minimize the complexity of investment portfolios. We determine if any existing insurance or investment products should be liquidated or consolidated. For example, clients oftentimes have questions regarding variable annuities, whether to keep, sell or transfer to another annuity.
  7. Maximize transparency. Unless there are overriding considerations, we strive to use investment products that have a minimum of complexity and maximum of transparency. Choosing investment vehicles that are transparent and non-complex helps minimize the exploitation that inevitably occurs when a select few have access to, and understanding of, important information, allowing them to use it to their advantage, at the expense of the consumer. So, for example, we take a hard look at equity-indexed annuities and non-traded REITs.
  8. Minimize taxes. We develop, implement and monitor an income-tax efficient strategy to fund accounts and, as needed, a tax-efficient withdrawal strategy when withdrawals become necessary (usually in retirement).
  9. Research. We research the past in order to understand what is probable for the future. We spend the bulk of our time planning for what is probable and very little time on all the market "noise."
  10. Educate. We educate the client on various topics related to investing for the long haul.
  11. Monitor. Throughout the year we monitor mutual funds used in client accounts, tax strategies, estate-planning techniques and other variables that impact client portfolios.
  12. Rebalance. We typically rebalance client portfolios annually to match current risk tolerance and time horizon. This normally means selling a portion of the investments in a portfolio that have done well and using the proceeds to buy more of the investments that are lagging (buying low and selling high) in order to rebalance the portfolio back to the target allocation. By the way, this is the exact opposite to the normal emotional reaction, which is to sell low and buy high.
  13. Annual reviews. We have annual reviews with most of our clients. This is a time to reassess risk tolerance, review goals, discuss changes in personal situation and determine action steps.