Our investment philosophy is based on the best practices of leading financial economists and institutional money managers. We use an approach called Evidence-Based Investing to bring academic research to the world of personal finance. We offer broadly diversified pension quality portfolios tailored to each client's unique financial circumstances.

Regardless of how your existing investment portfolio has been developed, the portfolio management process is one of the most important steps in the wealth planning process. Given the size of most our client's investments holdings their portfolio structure starts to mirror that of an institutional or pension plan investment mandate.

Evidence from practicing investors and academics alike point to an undeniable conclusion: returns come from risk. Gain is rarely accomplished without taking a chance, but not all risks carry a reliable reward. Financial science over the last fifty years has brought us to a powerful understanding of the risks that are worth taking and the risks that are not.

Stocks are riskier than bonds and have greater expected returns. Relative performance among stocks is largely driven by the two other dimensions: small/large and value/growth.

 

Three Dimensions of risk (Equity Factors)*

Market	Stocks have higher expected returns than fixed income or bonds.
Size	Small company stocks have higher expected returns than large company stocks.
Price	Lower-priced "value" stocks have higher expected returns than higher-priced "growth" stocks.

Many financial economists believe small cap and value stocks outperform because the market rationally discounts their prices to reflect underlying risk. The lower prices give investors greater upside as compensation for bearing this risk.

Role of Fixed Income in the Portfolio

The primary role of fixed income in a portfolio is to reduce the overall volatility of the portfolio and preserve captial. Our fixed income management strategy is designed to create a portfolio that results in similar before-tax performance to a broad based bond universe, while outperforming it on an after-tax basis.

Within the fixed income universe, securities with longer term maturities and lower credit quality are riskier than shorter term, high quality investments. However, several academic studies have shown there is little historical reward for bearing this risk. For this reason we believe a portfolio of fixed income investments should have shorter maturities and higher credit quality so that investors can lower overall portfolio volatility or accept more volatility in the equities where expected returns are higher.

* Stocks and bonds that are included in your portfolio are part of portfolio management solutions provided by the third party investment management companies.

Data source: Fama/French, “The Cross-Section of Expected Stock Returns,” Journal of Finance 47, no. 2 (June 1992): 427-65