NEWSLETTER
v.8, May 1, 2024
What I’m Working On
How We Approach Investing for Our Clients: Core Investment Principles
As financial advisors, our core mission is to create investment portfolios that maximize expected returns for each client’s risk tolerance and time horizon. We follow a disciplined set of empirically-validatedinvestment principles when designing and implementing client portfolios in keeping with this goal. Here are the fundamental tenets that guide our investing approach:
Embrace Efficient Market Pricing
We believe capital markets are highly efficient in pricing securities based on currently available information. Security prices reflect the collective expectations of millions of market participants. Whileprices can deviate from “fair value” in the short term due to random noise, they ultimately revert to anequilibrium reflecting fundamentals over longer timeframes. Attempting to consistently “beat” the market by trading on mispriced securities is extremely difficult, if not impossible.
Maintain Appropriate Exposure to Equity Risk
Equity investments carry higher expected returns than fixed income because they involve higher risk. This equity risk premium has persisted over decades of market history. By embracing this higher volatility, you
open yourself up to the potential for higher returns. This can be an exciting prospect, but it’s important to remember that it may or may not be appropriate for your individual goals and risk tolerance.
Diversify Extensively
Holding a single security or narrow basket of stocks is precarious, as specific companies can experience adverse events. Diversifying across hundreds or thousands of securities eliminates that idiosyncratic risk without reducing expected returns. We diversify client portfolios across multiple asset classes, sectors, geographies, and security types.
Reduce Frictional Costs
Investment costs like trading commissions, fund expenses, bid-offer spreads, and taxes diminish portfolio returns over time. We seek to minimize clients’ “frictional” costs through passive indexing strategies, efficient trading practices, asset location, and tax management.
Take a Strategic, Long-Term View
Attempting to time markets or chase hot sectors rarely pays off over complete market cycles. We build strategically allocated portfolios targeting each client’s desired long-term risk/return profile and then maintain disciplined rebalancing rather than reactively shifting exposures.
Focus on What You Can Control
While market returns are uncertain, investors can control their savings rate, time horizon, investing costs, and tax efficiency. We help clients identify clear goals, understand their risk capacity, minimize costs, and stay focused on variables within their control.
Manage Emotions with Discipline
Investor emotions and behavioral biases often lead to poor decision making around markets. Greed causes excessive risk-taking after outsized returns, while fear prompts panic selling after losses. We coach clients to maintain discipline and tune out market noise.
Consistent exposure to equity and other risk premiums is required to build long-term wealth. Our role is to optimally structure efficient, diversified risk exposure for each client’s unique situation and preferences. These investment principles allow us to accomplish that in a research-driven, cost-effective manner.
We hope reviewing our core investment tenets provides valuable insight into how we manage client portfolios.
Market Indices
Year-to-date, as of May 1, 2024
Stocks:
Large Cap S&P 500, +5.57%
Small Cap Russell 2000, -2.62%
Technology NASDAQ, +4.31%
International MSCI EAFE, +1.41%
“An investor doesn’t have a prayer of picking a manager that can deliver true alpha.” –Eugene Fama
“There’s quite a bit of evidence that even professionals don’t show any ability to pick stocksor to predict market rollbacks…(they) have probably just been lucky” — Eugene Fama
Bonds:
U.S. Aggregate AGG, -2.67%
Sources: FactSet; Dow Jones Market Data;
S&P Dow Jones Indices
; ICE Data Services; BloombergIndices; and J.P. Morgan.
What I’ve Enjoyed
To supplement the personalized financial guidance I provide clients, I have created a YouTube channel as an educational resource for the broader community. In this video library, I cover many personal financetopics that I typically touch with my clients. My goal is to equip viewers with foundational money management knowledge and skills. The channel is a transparent, no-hype space for learning financial concepts and principles. While not a replacement for professional advice tailored to your specific situation, the videos offer a way to increase your financial literacy on various topics. I encourage you to browse, recommend, and “subscribe”. It has been a humbling process, but I am enjoying the tremendous support from my community. I value all feedback from you as I look to improve my content.
YouTube Channel
Learn More
If you would like to meet and learn about my financial planning and investment management services, please schedule a free consultation.
