As an independent financial advisor, we are free to build investment portfolios we believe will best empower our clients to reach their goals. With this freedom comes responsibility. This is why we look to evidence-based principles from academic research to guide our portfolio construction. It can turn practical investing into the best tool our clients have in their financial planning arsenal.
This vision establishes five core beliefs that drive value for our customers:
Keep fees low
We placed fees atop the list for a reason. The market is not within our control, but fees are. We must constantly optimize the things we can control.
Buy index funds
An index fund is simply a mutual fund that is designed to match or track a market index - the S&P 500, for example. Index funds offer broad diversification, low turnover ratios, and low expense ratios. According to Morningstar, the average mutual fund operates at an expense ratio of 1.25 percent. On a weighted average our expense ratios range between .24 percent and .45 percent. Accumulated over time, that difference can have a real impact on your lifestyle.
We are firm believers that no one can predict the market. For this reason we have built a globally diversified portfolio. Our clients are in a position to take advantage of market gains across the globe as they occur.
Don’t attempt to time the market
One of the most dangerous moves an investor or advisor can make is to react to the market. Attempts to predict where the market is headed are futile. Market timing for some investors is so extreme they leave the market entirely based on a prediction of recession. Other sell-off part of an under-performing asset class to purchase something “better.” These are just examples of the many forms of marketing timing, but in the end the typical outcome is not positive for the investor.
In the face of market turmoil, some investors find themselves making impulsive decisions. Or they become paralyzed, unable to make simple decisions about their portfolio. When an investor focuses on the first four items on this list, discipline is built in. You no longer rely on predictions of those looking to make a quick commission, or on your own response to market news. Instead you are guided by an evidence-based strategy that has the best chance of working in any market conditions.
In January we will take a look at how these principles translate into the choices we make for constructing our portfolios.
Until then, we at AssetBuilder would like to wish you and yours a Merry Christmas and the Happiest of Holiday seasons. We offer our best wishes for a prosperous 2017.