Our investment philosophy is based on the Efficient Market Hypothesis developed by 2013 Nobel Peace Prize winner Eugene Fama.
The Efficient Market Hypothesis was derived from his 1970 article in the Journal of Finance titled Efficient Capital Markets: A Review of Theory and Empirical Work.
The hypothesis states that market prices reflect all available information. Essentially, it is impossible to consistently “beat the market” on a risk-adjusted basis because market prices should only react to new information.
Key Takeaways
- Market prices reflect all available information
- Stocks trade at fair market value
- Low-cost, Asset allocation portfolios
Four Beliefs to How We Manage Your Investments
Belief 1. The Importance of Asset Allocation
Using broadly diversified stock and bond index funds, the mix of those assets (i.e., asset allocation) will determine the total portfolio’s returns and risk.
Your retirement portfolios are built with a Top-Down Approach, driven by broad market exposure.
A 1986 study by Brinson, Hood, and Beebower showed that asset allocation accounted for over 90% of diversified portfolio returns.
Investment Outcomes are Largely Determined by the Long-Term Mixture of Assets in a Portfolio
Belief 2. We Invest in Index Funds
We use passive low-cost broad market index funds to invest in your appropriate asset allocation model.
Exchange-Traded Funds (ETFs) let us buy and sell at any point during market trading hours.
We invest your money in some of the industry’s leading investment management companies, such as Vanguard, iShares, Invesco, Schwab, State Street Global Advisors, to name a few.
A 2019 study by Vanguard and Morningstar compared passive vs. active managers over 15 years. Shows data to support the outperformance of passive index funds.
Percentage of Active Funds Underperforming Their Prospectus Benchmark over 15 Years through December 2019
Belief 3. Fees Matter
We cannot control the markets. However, we can control the fees you pay to invest, which can make a massive difference over time.
We only construct your retirement portfolios with some of the lowest-cost ETFs in the industry.
Our average fund expense ratio is less than 0.10%, compared to the industry average of 0.41%, according to a 2020 Morningstar study.
Lower Costs Can Support Higher Returns
Belief 4. We Use Tax-Efficient Index Funds
One reason we use Index ETFs is their tax efficiency.
Index funds (passive funds) simply replicate an index’s holdings; they don’t trade in and out of stocks as often as an active fund would.
Less buying and selling of stocks and bonds by fund companies often leads to fewer capital gains than actively managed funds.