Together, we will complete a thorough review of your existing portfolio, evaluating its diversification, risk level and related expense factors. We will evaluate your current position in light of your stated goals, risk tolerance and time horizon. The primary factor affecting your investment decision is your time horizon — the amount of time that you reasonably expect to have your funds invested. Time impacts cash/cash equivalents, bonds (fixed income), and stocks (equities) in different ways. Cash equivalents (e.g., money market accounts or Certificates of Deposit) pose little risk to principal, but may suffer tremendous erosion from the effects of inflation. Bonds react inversely to changes in interest rates, losing value as rates rise. Equities must be considered as long-term investments. Because of their short-term volatility, investing in stocks for periods of less than five years carries a significant risk of loss of principal. Determining a reasonable time horizon for your portfolio will provide a starting point for the division of assets among these major classes of investments. A number of academic studies have concluded that the bulk of a portfolio’s return is determined by simple asset allocation — dividing the portfolio into a selected percentage of stocks, bonds, and cash. Over longer periods of time, stocks behave like stocks, bonds like bonds, and cash like cash. Actively managing a portfolio through security selection and/or market timing increases related expenses but adds little to the total long-term return. In most instances, security selection and market timing become detractors from return.
Using proven portfolio management concepts, we will generate an investment plan tailored to your specific needs. A formal Investment Policy Statement defines all aspects of your portfolio design and management. Portfolios are based on historic market returns and risk measurements and are constructed for your particular situation. This process seeks to reduce taxes and investment expenses and to lower portfolio risk making it more likely that you will achieve financial success.
Low Cost Institutional Class Mutual FundsAs fee-only investment advisors, we can provide access to tax-efficient, low cost, no-load institutional class funds that are unavailable to the general public. Because these funds are designed for large institutional investors, they charge low fees and involve no commissions or loads. We are pleased to be able to offer the Dimensional Fund Advisors family of funds to our clients.
Some funds impose no front-end load, but charge higher operating expenses to make up for commissions paid to salespeople in the distribution channel. These fees are imposed annually cutting into the potential reward that an investor may realize as a result of his investment. Should the investor liquidate his holdings in the fund prior to a specified number of years, a contingent deferred sales charge may be imposed in lieu of the fund’s ability to recoup its commission expenses. Regardless of whether a fund’s fees are charged as front-end, back-end or annually, the higher they are, the more difficult it becomes to maintain average investment return in comparison to an appropriate index. Annual operating expenses may range from below 0.1% for a passively managed index fund to over 5% for actively managed funds. The sad fact is that over 70% of actively managed funds fail to beat their relevant benchmark annually. Put another way, many fund managers fail to add enough additional value via their stock-picking and/or market timing expertise to cover the expenses that they impose. Our portfolios feature many passively managed funds from the Dimensional Fund Advisors family.