Our Investment Philosophy

The guiding principles of our investment approach are as follows:Hands_Holding_A_New_Tree

  • Don’t put all your eggs in one basket – a highly diversified portfolio reduces portfolio risk and increases expected returns
  • Play a winner’s game – invest using index mutual funds and ETFs
  • Manage risk, not returns – asset allocation is driven by your goals, preferences, time horizon, risk tolerance, and need to take risk.
  • It’s not what you make, it’s what you keep – expenses and taxes lower your net returns


Don’t put all of your eggs in one basket – diversification

Different categories of investments are sometimes described as asset classes. The major ones are stocks, bonds, and cash.  Within each category there are numerous sub-categories.  Each asset class has a benchmark, or standard against which each mutual fund or investment manager can be measured.

The Callan Periodic table of Investment Returns shows the historical investment returns for various asset classes.  Note that no single asset class consistently outperforms and that some asset classes, such as emerging markets, have volatile returns.  Risk is defined as the chance that an investments actual return will differ from its expected return.  The greater the amount of risk in an investment, the greater the potential return, since investors expect to be compensated for taking on extra risk. Note also that the returns of some asset classes have a low relationship, or correlation, to each other.  For example, the S&P 500 index has historically had low correlation with the BC AGG Bond index.

Successful investing requires more than taking risks to get an expected return. It also means reducing risks that do not. Avoidable risks include holding too few securities, betting on countries or industries, or trying to time the market.

A portfolio composed of multiple low-correlating asset classes has provided a higher, more consistent historical return than a portfolio composed of a single asset class.  Adding more asset classes in the appropriate proportions can further increase expected return while lowering risk.

Play a winner’s game – passive or index investing

There are two primary approaches to investing.  Passive or index investing seeks to track the returns of a benchmark index, such as the S&P 500.  Active investors seek to beat the benchmark returns through ongoing buying and selling.  Active investors typically have higher expenses and tax costs.  Passive investors win by not losing, since over extended time periods passive investments deliver higher returns than most of the more expensive managed alternatives. Standard & Poor’s regularly tracks the performance of active funds versus their benchmark index, and produces an index versus active funds scorecard, also known as the SPVIA report. In a recent report, its analysts found that over the trailing five-year period, 72.2 percent of large-cap funds had failed to beat their benchmark.

The failure rate was 77.4 percent for mid-cap funds, 77.7 percent for small-cap funds, 81.7 percent for international funds, 85.3 percent for emerging market funds, 81.2 percent for short-term government bond funds, 88.6 percent for mortgage securities funds and 82.6 percent for high-yield funds. While the percentages change from quarterly report to quarterly report, the pattern is constant---a significant majority of active funds fail to outperform their target index.

We help you play a winner’s game.


Manage risk, not returns – asset allocation

An optimal portfolio provides the highest expected return for a given amount of risk.  We custom design your portfolio based on your goals, preferences, time horizon, risk tolerance, and need to take risk.

It’s not what you make, it’s what you keep - costs matter

We build portfolios with best-in-breed, low cost index mutual funds and ETFs.  A buy-and-hold approach minimizes taxes, and we consider the location of investments (taxable versus tax deferred accounts) when constructing portfolios.