Our
investment approach is based on the same Nobel prize research upon
which the American Law Institute built its prudent investing guidelines
for trust fiduciaries.
For those who like chasing the latest hot
tips we suggest you continue with your broker. Our Wealth &
Investment Management is a long term investment approach designed to
minimize risk and still deliver the returns the markets offer. You
worked hard for your savings and now you don’t understand what has
happened in recent years to what you thought was a safe investment. We
work with you to establish a sound investment policy based on your
goals and comfort level. Then we diversify your portfolio based on
Nobel prize winning research and your investment policy. The end
result; your nest egg will receive market rates of return at a minimum
of risk.
What we DON’T do:
We don’t time the market. WHY NOT? Research has shown only 2% of your
actual long term return comes from timing the market.
We don’t pick the hot stock. WHY NOT? Research has shown only 4% of
your actual long term return is determined by stock selection.
We don’t charge any commissions. WHY NOT? We don’t buy individual
stocks and therefore there are no commissions for recommending you buy
or sell.
These techniques may win in the short run but we are interested in long term investment success.
So just what do we do? One simple principle.
We use investment allocation based on Nobel Prize Research to minimize
the risk you take and assure you earn the return the market offers. Do
you have an investment policy? If you don’t it is just like going
through life not knowing where you are headed. You probably won’t be
satisfied with where you wind up either. We work with you to determine
your investment needs, the level of risk you are willing to take and to
insure your investment portfolio is based upon your investment policy.
Everyone likes hot returns. Unfortunately most people don’t realize,
the pain of your investments going down is twice as strong as the joy
of them going up. We don’t guarantee a percentage return. We guarantee
you market rates of return at the risk level you are comfortable
accepting.
This Nobel Prize based investment philosophy is designed to:
- Diversify your investments
- Structure investments to minimize risk
- Minimize investment expenses to the investor
- Minimize income tax cost which is the highest single cost of most investments.
- Deliver market rates of return while performing the above
Exactly how is the money invested?
There are thousands of mutual funds out there all chasing the same
5,000 stocks and all trying to convince you they can beat the market.
We primarily use Dimensional Fund Advisors (DFA) funds to diversify
your portfolio. DFA was formed to provide a diversified investment
approach for large pension funds and institutional investors because
they are not interested in market timers and stock pickers. Individual
investors cannot even purchase shares in DFA funds without using a
approved investment advisor. DFA funds are designed as low cost funds
which allow you to diversify your portfolio based on Modern Portfolio
Theory which won the Nobel prize for investment research.
Don’t
take our word for it. If you want to read more about DFA and what
Modern Portfolio Theory is really all about read these articles:
1. The Best Fund Family You've Never Heard of -- and Why It Doesn't
Want Your Money By Beverly GoodmanSenior Writer - The Street.Com
08/26/2002 07:11 AM EDT
2. How the Really Smart Money Invests. Nobel Prize winners entrust
their nest eggs to DFA, where investing is a science, not a spectator
sport. Shawn Tully, Fortune Magazine Magazine Issue: July 6, 1998
3. DFA Funds Hard to Buy, Easy to Own, By Timothy Middleton CNBC on MSN, June 4, 2002, Copyright 2002
4. A WORLD-CLASS MENU OF 401(K) CHOICES, By Paul Merriman, CBS.MarketWatch.com, 1:35 AM ET Jan 16, 2002
5. Active Mismanagement: The Case for Index Funds By Beverly Goodman
Senior Writer - The Street.Com 08/12/2002 07:25 AM EDT
6. Best of Breed, DFA US Small Cap Value Takes an Active Approach to
Passive Investing, Bloomberg Wealth Manager, Mar 2003
1. What is our investment philosophy based on?
A long-standing debate about the stock markets has been whether or not
they are “efficient.” The Efficient Market Hypothesis (EMH) is the
basis for the body of academic work known as Modern Portfolio Theory,
upon which the American Law Institute built its prudent investing
guidelines for trust fiduciaries. EMH states that markets quickly and
accurately reflect available information, and are setting “fair” prices
for buyer and seller.
As investment advisors advocating a passive strategy, we heed the
academic evidence indicating markets are too efficient to accept the
cost involved in identifying mispriced securities. We instead recommend
that investors allocate their investments according to equity risk
factors, which can be expected to compensate investors with real, after
expense premiums. Portfolios are designed to meet each investor’s
unique ability, willingness and need to take risk (and its commensurate
expected reward.). Passive management as opposed to active management
is the practice of constructing a portfolio by using funds that are
proxies for specific asset classes or markets, based on the theory that
it is so difficult to persistently outperform the market that it is
cheaper and less risky to just buy the market. Characteristics of this
investment approach include lower portfolio turnover, lower operating
expenses and lower transaction costs; greater income tax efficiency, a
long term perspective, broader diversification, periodic style-drift
correction and incorporation and incorporation of separate dimensions
of worldwide returns.
2. Understanding where others have failed:
The consulting firm Future Metrics studied the performance of 213 major
US corporate pension plans for the 15-year period 1987-2001. How did
they compare to comparable passive benchmark portfolio? Out of 213
pension plans attempting to outperform the market using active
management, 9 percent of them succeeded. More than 90 percent failed.
It would be logical to assume that individual investors, with far fewer
resources available, would likely fare even worse.
Vanguard studied 420 domestic balanced mutual funds that existed at any
time between 1962-2001 (provided the fund had at least five years of
performance history and significant allocations to both bonds and
equities). The study concluded that, on average 77% of a funds monthly
return variation was explained by policy allocation. Security selection
and market timing collectivity explained the remaining 23%. It also
found that more than 100 percent of the achieved return could be
attributed to asset allocation. How can a contributing factor be more
than 100%? This means that the costs associated with market timing and
security selection actually reduced the realized return below what
would have been achieved if no such efforts were made.
Examine the performance of Morningstar's top rated funds, after they
receive their top rating. The Hulbert Financial Digest tracked the
performance of Morningstar's five-star funds from 1993-2000. For that
eight-year period, the total pretax return on Morningstar's top-rated
US funds averaged 106 percent, compared to a total return of 222
percent for the total stock market as measured by the Wilshire 5000
Equity Index. Hulbert also found that the top-rated funds, while
achieving less than 50 percent of the market's return, carried a
relative risk (measured by standard deviation) that was 26 percent
greater than that of the market.
Should You Invest in Growth or Value Stocks? There is very strong
historical evidence supporting the “value effect” in equity markets —
the fact that value (high book-to-market) stocks have provided higher
returns than growth (low book-to-market) stocks over the long term. For
example, a data source that serves as an appropriate proxy for
comparing growth versus value performance is that provided by
Dimensional Fund Advisors (DFA). Using DFA’s data for the period
1964-2000, US large value stocks outperformed large growth stocks by
14.7 percent to 11.1 percent and U.S. small value stocks outperformed
small growth stocks by 17.4 percent to 11.9 percent. The evidence is
just as strong in international markets. For the period 1975-2000
international large value stocks outperformed the EAFE index
(international large growth stocks) by 18.7 percent to 13.7 percent.
Institutional Investor magazine created an all-star team consisting of
the “top” analysts in each industry. These analysts are chosen based on
a poll of hundreds of institutional investors. In 1980, Financial World
set out to measure the performance of these all-stars. After months of
digging, the magazine managed to determine the recommendations of 20
superstars. For the period in question, while the market rose 14.1
percent, following the recommendations of the all-stars they could
identify would have provided a return of just 9.3 percent.
3. What have market timers and stock pickers done to gain an advantage?
Regulators said a quarter of USA’s major brokers have engaged in
illegal late trading. In more evidence that small investors are being
shortchanged, regulators also said nearly 450 brokerages have
overcharged on fund purchases and ordered them to notify their
customers of possible refunds. Nearly 30% of brokerage firms assisted
market timers, and almost 70% were aware of market timing by customers.
About half of mutual fund companies appear to have arrangements to
allow some customers to engage in market timing. Excerpts from Probe
Into Mutual Fund Abuse Widens-1 in 4 major brokers breaks rules-USA
Today 11/04/03
The SEC says 30% of fund companies disclosed details about their
portfolio holdings to favored customers. Armed with the knowledge of
what funds are doing, those customers could buy or sell along with the
fund and make outsized profits. The industry has been fighting against
increased portfolio disclosure to ordinary investors for years. Even
worse, 10% of the fund companies surveyed may have allowed late
trading. Late trading is when customers put in a trade after the funds’
4pm cutoff but get the pre-4pm price. It’s like betting after the race
is over, and it’s illegal. Excerpts from Scandal Outrage Keeps
Growing-USA Today 11/04/03
Ask yourself a few questions??????
1. What has your experience been as you look back through your investment history?
2. What are your financial goals?
3. What are you looking for in an investment advisor?
4. Do you have a written investment policy?
5. If so, is your investment policy designed to diversify your
investments, minimize your expenses, minimize your taxes, minimize your
risk and deliver market rates of return?
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