We manage custom investment portfolios using the following principles:
Discipline
Since 1900, the stock market has experienced over 30 declines of 10% or more but has taken just 10 months on average to recover from these declines. The key to long-term success is to remain disciplined, be patient, and avoid panic during times of loss.
Goal-Based Portfolios
Rather than managing accounts in isolation, we structure a portfolio that may consist of several accounts dedicated to a particular financial goal, such as retirement, education, or a major purchase. We have invested in technology that allows us to advise on 401(k)s and other accounts not held at our custodian when rollovers are not advised or possible.
Strategic Asset Allocation
Asset classes, such as stocks, bonds, and cash, respond differently to market events. Having a diverse mix of asset classes in a portfolio helps to smooth a bumpy ride. We help our clients select the right asset allocation for a portfolio based on their risk tolerance and time horizon. Since there is no reliable way to predict asset class returns, we recommend sticking to a target asset allocation unless the client’s risk tolerance or time horizon has changed.
Tax Efficiency
Many advisors implement the same asset allocation in every client account. This approach is easy for the advisor but will cost you more in taxes if you have a mix of tax deferred and taxable accounts. Instead, we manage portfolios that span several accounts in order to rebalance within tax deferred accounts and place the least tax efficient asset classes in tax deferred accounts. We also pay attention to tax costs when selecting funds for taxable accounts and use tax-loss harvesting to deliver tax savings.
Customization
Most advisors use cookie cutter model portfolios. This practice is easy for the advisor but often requires clients to sell holdings and pay taxes to transition to the model portfolio, even when there is no meaningful benefit to the client. Advisors wed to model portfolios generally cannot manage assets in 401(k) plans because of the limited investment options available in the plans. Although we may start with a model portfolio, we customize it in the best interest of each client, whether to avoid taxes or advise on assets in 401(k) plans.
Diversification
Diversification within each asset class reduces unnecessary risks that come with holding a sizeable stake in a single company or sector. We generally use mutual funds and Exchange Traded Funds (ETFs) to provide broad diversification but may use Separately Managed Accounts (SMAs) to provide tax savings in large taxable accounts.
Research-Based Strategies
Studies have shown that certain “factors” or “dimensions” have produced superior performance across time and markets. We invest the equity sleeve of client portfolios primarily in Dimensional Funds, which provide broad diversification but tilt towards factors that have been proven by research to outperform across all markets: value, size, and profitability.
Low Institutional Costs
The funds and ETFs we select for our portfolios have extremely low expense ratios, which keeps more money in your portfolio. We are able to purchase low cost Dimensional Funds (available only through approved advisors) and institutional share classes with the lowest expense ratios.
Rebalancing
Over time, a portfolio’s asset allocation drifts from its target because some asset classes perform better than others. We do not rebalance annually but recommend rebalancing when the asset allocation deviates significantly from its target in order to reset the risk of the portfolio and systematically sell high-priced asset classes for low-priced asset classes.
Systematic Cash Flow Planning
We make additions and withdrawals in ways that systematically sell high-priced assets and buy low-priced assets. We often recommend dollar-cost averaging for clients pre-retirement as a means of managing cash flow, and this strategy systematically purchases more of low-priced asset classes and less of high-priced asset classes. We invest lump sums in the asset classes that are under-represented in the portfolio (and, therefore, low-priced), and sell asset classes that are over-represented (and, therefore, high-priced) for withdrawals.
Transparency
We provide quarterly reports that compare your portfolio’s asset allocation and performance to a benchmark. Rather than using simplistic benchmarks such as the S&P 500, we construct a benchmark using several indices based on your portfolio’s unique asset allocation in order to show how your portfolio has performed in light of its risk profile.