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Our Investment Philosophy
Our investment philosophy is firmly rooted in the conviction that markets are efficient—meaning that current prices reflect the knowledge and expectations of all investors.
Therefore, we do not engage in stock picking or market timing. Instead, we build globally diversified portfolios using passively managed mutual funds as building blocks. These low-cost, tax-efficient portfolios are designed to help our clients reach their financial goals.
Our Core Beliefs
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Implementing
Investment Strategies
We emphasize asset class allocation and minimum trading to harness the power of the normal movements of the market while minimizing investment costs and taxes. |
- It is necessary to integrate all the key areas of financial planning—investment management, retirement planning, estate and charitable planning, insurance, and income tax planning—as all these areas are integral for achieving personal financial success.
- The most important investment decision you must make is the appropriate balance among the major categories of investments (cash, bonds, stocks).
- Broad diversification among and within investment categories can increase returns as well as reduce risk.
- Low-cost, no-load, passively managed mutual funds are the most efficient way to harness market returns.
- Developing a plan and adhering to a long-term disciplined strategy are the most reliable ways to achieve long-term goals.
- Investors should not engage in market timing.
- It is the cost of trying to “beat the market” that causes most investors to fail to achieve market returns.
- Past performance is of little or no value in selecting superior performing mutual funds or money managers in the future.
A Commitment to Principles
It has been our experience that investment success is more likely to be achieved through an unwavering commitment to a set of clearly defined investment principles. These principles serve as a platform for every portfolio we design for our clients.
EFFICIENT MARKETS: Security prices are determined according to all freely available information and by fierce competition among market professionals. As such, we believe it is virtually impossible for any single investor to consistently earn more profits than other investors by choosing securities that are undervalued. In other words, market forces create an environment where picking individual stocks does not guarantee superior performance.
MODERN PORTFOLIO THEORY: Modern Portfolio Theory (MPT) was developed at the University of Chicago by Harry Markowitz and Merton Miller and later expanded on by Stanford professor William Sharpe. Each of these professors later won the Nobel Prize in Economics for their contribution to investment methodology. Unlike traditional asset management, which focuses on predicting individual stock price movements, MPT looks at the portfolio of assets based on the combination of its risk and return components. According to the principles of MPT, there is an optimum combination of investments that will bring the highest rate of return for every level of risk.
DIVERSIFICATION: Investors can reduce their potential for loss by investing in a basket of different securities. In other words, diversification means the same thing as the adage, “Don’t put all your eggs in one basket.” It is important to note that a diversified portfolio is not necessarily a properly allocated portfolio.
ASSET ALLOCATION: Academic research has provided evidence that an investor’s asset allocation decision—the choice of asset classes and the portfolio percentage allocated to each—is the single most important element in a portfolio strategy. It accounts for 94 percent of a portfolio’s performance compared with 2 percent for market timing decisions and 4 percent for security selection. Asset allocation involves diversifying among several asset groups to improve total return while reducing risk.
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©2010 Grand Wealth Management, LLC. All rights reserved.
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