Efficient Market PhilosophyOur first priority is to help our clients achieve their investment objectives. To this end, we have developed a rather straightforward philosophy backed by experience and numerous research studies. We believe in the following principles and practices:
- Securities are fairly priced in the competitive markets. That is, current market prices reflect all available information about a particular stock and/or market. Therefore, it is highly unlikely that an individual investor or analyst can know more than the market knows collectively. Instead of trying to pick stocks or time the market, we believe higher expected returns come with investing in the broad sectors of the market (i.e., asset classes and indexes). Using this strategy known as “passive investing,” we can put the power of the market to work for our clients.
Market Equilibriumfrom Dimensional Fund Advisors on Vimeo
- Diversification is crucial to a sound investing strategy. Diversification enables investors to capture broad market forces while reducing the uncompensated risk associated with individual securities. We apply strategies that seek to draw heavily upon this philosophy. An excellent way of managing risk is to diversify the portfolio among the basic asset classes (i.e., stocks, bonds, and cash) and within categories of assets. In general, there is great benefit in selecting assets that move differently from one another—that is, assets that have a low-correlation. While it does not eliminate the risk of market loss, diversification does help eliminate the random fortunes of individual securities, and it positions your portfolio to capture the returns of broad economic forces. We work diligently to generate competitive returns for our clients, and we never lose sight of the need to mitigate the level of risk to which you are exposed.
- Investing involves balancing risks and costs with expected return. Risk means opportunity, and investors are rewarded in proportion to the risk they take. Much of what we have learned about expected returns in the equity markets can be summarized in three dimensions. The first dimension is driven by the market (stocks vs bonds): Stocks are riskier than bonds and have greater expected returns. Relative performance among stocks is largely driven by the two other dimensions: company size (small/large) and relative price (value/growth). Relative performance in fixed income is largely driven by two dimensions: term and credit.
|Market||Stocks have higher expected returns than fixed income.|
|Size||Small company stock have higher expected returns than large company stocks.|
|Price||Lower-priced “value” stocks have higher expected returns than higher-priced “growth” stocks.|
- Transparency matters. Investors need to understand what services are right for them and what each service level costs. We offer three levels of Financial Planning and three levels of ClearPath Investing. Each service is designed to match client needs without bundling unnecessary services, which makes it easier to adjust service levels as needs change. Because we use passive investing strategies, we are able to offer a low-cost, flat fee structure.