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Investment Philosophy

Diversification
Proper diversification is the most important attribute of a successful investment portfolio. Diversification reduces risk without necessarily reducing expected returns. Poorly diversified portfolios are inconsistent with the attainment of your financial goals.

Asset Allocation
Academic research suggests that how money is allocated among various types of investments (asset classes) is far more important than the selection of individual securities or individual funds. Our portfolios use asset classes that are meaningfully different from each other in order to maximize portfolio diversification.

Discipline
Investors under-perform the market because emotions interfere with their plan.  Typically investors react with fear by selling after markets have gone down.  They react with greed after markets have gone up.  We apply a disciplined portfolio rebalancing approach to maintain your target asset allocation.

Fund Selection
While the asset allocation decision is critical, it is worthless without intelligent investment selection. Mutual funds offer enormous advantages to investors and are the most effective way to implement an asset allocation decision. In general, mutual funds allow investors to gain exposure to virtually any asset class, obtain broad diversification within each asset class, and hire specialized management expertise. You just need to know how to select properly designed funds to ensure long-term portfolio results. Some of the design features we look for are:

  • Consistency of Style. Style consistency is essential if the asset allocation is to be meaningful and effective.
  • Low Cash Position. Cash is a performance drag. Cash should exist in your portfolio only as a source of liquidity. Cash embedded inside a fund does nothing to provide you with liquidity and should be minimized.
  • Low Fund Fees. Fees lower investor returns. Research demonstrates that funds charging below average fees tend to generate above average returns.
  • Low Turnover and / or High Tax Efficiency. Turnover generates trading costs within mutual funds, which reduces fund returns. Additionally, turnover usually generates taxable events. Reducing turnover can reduce both costs and defer, and even lower, taxation.
  • Consistency of Relative Performance. Performance evaluations should be compared to a relevant benchmark. Consistency is important because it provides an indication of a stable and predictable investment management methodology.

Marketability
We almost never recommend investments in limited partnerships or other investments for which there is not a ready and liquid market. Such investments are not only illiquid, but often have risks that are enormously difficult to assess and can result in significant losses. The usual expectation is that 100% of your money will be invested in assets for which a ready and liquid market exists.


Taxes

Recognizing that it is not what you make, but what you keep that is important, we work diligently to maximize after tax returns. Foremost in this regard is to invest in tax efficient funds. Some fund managers explicitly manage their funds with taxes in mind. Other funds have very low turnover, and as a consequence tend to be naturally tax efficient.

Secondly, to the extent that the portfolio is comprised of taxable, tax-deferred accounts and even tax free accounts, we determine the appropriate account in which to place each asset to receive favorable tax treatment.

Lastly, in a diversified portfolio, there may be opportunities to "harvest" capital losses and use these to offset capital gains. We do this if trading costs do not outweigh the benefit of the harvesting.

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