We start by creating an Investment Policy Statement (IPS). This document outlines account objectives, target asset mix (stocks v. bonds, U.S. v. International, etc.) It also identifies types of investments, performance measurement and rebalance expectations. These guidelines and constraints create a disciplined structure to manage money.
The following beliefs provide a high-level framework for how we design investment portfolios.
1. Globally balanced asset allocation is a helpful risk management tool. Effectively combining investments in different types of stocks, bonds and other vehicles can improve investment performance and lower risk over time.
2. The largest investment risk is permanent loss of capital, not volatility. Volatility, to the disciplined investor, creates opportunity and is a necessary component of investment success. It is difficult to endure however, so we try to moderate volatility without any hope of eliminating it.
3. Diversification within each asset class is important. It can create more consistent performance rather than the experience of heightened risk at market peaks and elevated anxiety amid market corrections.
4. Investment strategy should be dictated more by your future liabilities and goals than by an attempt to beat a specific market index.
5. Market sectors and investment styles continually move in and out of favor for varying periods of time. We do not expect to shift our emphasis at exactly the right time. We prefer to be patient and generally correct, not precisely wrong, when making investment recommendations.
Following these beliefs as our foundation, we manage portfolios that are intended to:
- Adhere to historically successful tenets of investment management.
- Align with your goals.
- Be cost effective (low ongoing management fees) and tax efficient.
- Be liquid and flexible to adapt to changing circumstances of your life and markets.