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Investment Approach

Successful investing is about capturing risks that offer an expected return, & reducing risks that do not. That means limiting exposure to random forces & not falling into the temptation of basing an investment decision on forecasts, market timing, or past performance of investments. 

Most investment managers & advisors use "active" management strategies of forecasting the market, the economy, & favored securities that will hopefully bring exceptional returns.  Timing moves in & out of the market, with the selected securities, using the forecasts, is done in an attempt to “beat” the market. Over time, the overwhelming majority of active managers fail to exceed the performance of the market index/benchmark they are compared & evaluated against. In short, they don't beat the market. The market beats them. Here's evidence. And what about average investors?  From 1990-2009, the average mutual fund outperformed the average mutual fund investor by more than 300%. Since ERISA was passed in the 1974, enabling 401k accounts, the market has returned an average of 11% per year. However, the average investor has gained only 3% per year.

Because of the extremely long odds of successfully  outperforming the market with a meaningful degree of consistency, we choose to side with it. We see markets, & the returns they provide, as an ally, not an adversary.  

The strategic intent is to capture & deliver risk-adjusted, broad market performance, with maximum diversification for any economic environment, because we don't know what future economic conditions will be. Instead of trying to beat the markets, we believe in simply letting capital markets work for the investor, capturing the returns generated efficiently and inexpensively. 

Our approach is based on high probability of not significantly underperforming the market rather than remote possibility of outperforming of the market (over the long term). This means never hitting a home run (by outperforming the market), but also never striking out (with significant market underperformance). 

After appropriate financial planning, we recommend a stock & bond risk exposure for deploying our clients' capital to meet their goals. We then diversify the exposure as much as possible. Our wealth management portfolios typically contain 6,000 equity holdings from 45 countries around the world & the highest quality U.S. fixed income assets. We employ a systematic risk management strategy to ensure that investors can handle periodic volatility without abandoning their investment plan. We focus on minimizing expenses & emotions. We maximize diversification & discipline. It's simple, but not easy.

Using a patented probability modeling engine, we measure & forecast ONLY the uncertainty related to that which is not controllable (market/portfolio returns & their timing), & its impact on client wealth & goals. Why? Giving investment advice or managing investments based on well-intentioned but faulty forecasts on things like; the economy, U.S. & foreign capital markets, the Federal Reserve's monetary policy, interest rates, inflation, Washington political dysfunction, foreign wars/other geopolitical events, or even a group of very promising stocks, can hurt our clients by reducing their wealth.

We follow a disciplined, methodical investment strategy based on a known, positive, mathematical expectation. Successful investing to achieve goals is about probabilities – not prediction. Decisions should be based purely on known facts with the objective of managing risk & maximizing mathematical expectation to provide a level of statistical certainty where the odds work for you rather than against you. 

Wall Street would have the public believe that its relatively unlimited resources, mathematicians, computer scientists, small armies of analysts & researchers, software engineers, proprietary analytical & trading methodologies, financial engineering, deep networks of inside contacts, & algorithms can consistently determine profitable future investment trends giving a high level of predictability to unpredictable things. As impressive as all this capability appears, the markets are shaped by fickle & capricious human emotions, irrational behavior, & an infinite number of other forces outside anyone's control. Because of this, no one knows where the markets are headed over the next 5 months or 5 years. Anyone that tells you otherwise is misleading you. We refuse to bet our clients' lifestyles on forecasts.  

Active strategies, which depend on relatively short term predictions & forecasts, continuously introduce additional risk in trying to beat the market. Active management has extremely high odds of underperforming markets over time, sometimes significantly. Attempts to outperform the market always introduces the risk of underperforming it. Significant underperformance can be completely avoided with our approach. Our investment advice is driven by the belief that the underperformance risk that active managers create with their forecasting & short-sighted tactical investment decisions, is an additional risk to be avoided.

The U.S. stock market produced an annualized rate of return of 10% - 11% over the last 50 years. Although there were many turbulent years with economic shocks, bubbles, crashes & other unpleasant surprises, that level of return was available to disciplined investors with broad equity exposure without stock picking, forecasting, timing moves in/out of the market, researching, analyzing charts, staying glued to the financial media, or handwringing. The long-run predictability of the market is one of the most interesting facts discovered by finance researchers in the last few decades. It’s what earned University of Chicago Professor, Eugene Fama & Yale economist Robert Shiller their 2013 Nobel. While we can't know what future market returns will be, we do know that capitalism & free markets continue to be the greatest wealth generation machine the world has ever known. 

There is no "perfect" investment or portfolio. Our strategy & approach may be better or worse than another in any given year. But long term, the data undeniably suggests that it’s going to work better for most people that can stick with it. Until an active management strategy proves itself capable of some level of meaningful consistency in surpassing market performance, we are confident our investment approach & advice process have better odds of achieving preferred outcomes over the long term. 

Our clients do not pay us to beat the market, but to confidently produce & protect the wealth needed for every important goal in their lives.