Modern portfolio theory dates back to the work of Harry Markowitz, who published Portfolio Selection in 1952. Many scholars have contributed to our body of knowledge in the investment realm including Prof. Eugene Fama and Prof. Kenneth French, whose centralized work is commonly known as the Fama-French Three-Factor Model.  Markowitz and Fama subsequently received the Nobel Prize for their works. Professor Robert Haugen and many others have also extended our knowledge.
       Our firm utilizes Dimensional Fund Advisors (DFA) funds in our portfolios, as they embody results from the Fama-French model. We also believe that investors somewhere in the back of their minds should have an appreciation of history, and what it means in regard to the long-term retention of wealth. We spend some of our time thinking about longer-term threats to portfolios, such as inflation, taxation, and changing secular trends.
     First, we believe that the most important consideration is risk of the portfolio. We question how our individualized selections match our client's unique investment preferences and level of risk tolerance. Risk does not drive returns. We believe that on average, greater turnover of portfolio content does not increase portfolio returns, nor do higher commissions. 

Free markets work.

    Free economic markets are very efficient in setting reasonable prices, and trying to "time" them is counterproductive, alongside proving to be costly and unnecessary. Asset allocation determines much of portfolio return, and asset class diversification is a way to manage this risk while capturing the long-run rate of return of various asset classes. Albert Einstein is alleged to have said that compound interest was the greatest discovery of the 20th century. One way to harness this power is to generate more consistent and positive returns on a portfolio. Time, coupled with compounding returns, is a great lever to preserve and grow wealth for you and your family.

Diversification is essential to intelligently assume investment risk.

      A portfolio that is diversified among asset classes will be much more resilient than one that is focused on one area. Diversification reduces portfolio volatility because different holdings don’t move together. We believe in broad diversification, and tend to select several well-defined asset classes for each portfolio. For equities, we utilize U.S., international, and emerging market holdings in our portfolios. In fixed income, we emphasize short-term, high-quality exposure. 

Enhanced asset classes help.

      We use an asset class overlay approach with tilts to “value” and “size” factors, consistent with the Fama-French Model. This approach offers lower costs, higher tax-efficiency, and diversification. Incurring higher costs does not lead to higher returns. As we design our portfolios using low-cost strategies, investing patiently, and keeping our management fees reasonable, clients are more likely to enjoy a comfortable investment experience and reach their financial goals sooner. We also protect clients from the common tendency to invest in different securities as they go in and out of favor. We are willing to pay more for issues that offer a higher versus a lower growth rate, other important factors being equal.  
      As an established investment advisor, we have access to a broad range of financial instruments. Other things equal, we will use the one with the lower expense ratio and lower transaction costs, believing that the available evidence does not indicate that greater transaction costs lead to greater return. We often use asset class funds from Dimensional Fund Advisors to fill out various asset class allocations. Dimensional Funds (DFA Funds) are constructed in a manner designed to take advantage of Nobel prize-winning financial research, and are noted for their low expense ratios and superior construction.

      We invite you to reach out and further inquire about our underlying theory, experience, and applications, and would be pleased to sit down with you to discuss them further and their relation to your unique investment goals.