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investment philosophy

View from Flattop Mountain, Rocky Mountain National Park, CO

When looking for a good fit in a financial advisor it's important to understand and be in alignment with their investment philosophy. Here's mine.


Successful investing depends on a belief in the future

When you invest you commit your money to companies (people + ideas + infrastructure + risk-taking + effort + productivity). They produce real products and services which improve our lives. In return, you get a share of their profits. Investing only makes sense if you believe companies will continue to produce in the future.


Investing is a tool to achieve your financial goals

The purpose of investing is to achieve the growth needed to meet your long-term goals. So, base the design of your investment portfolio on a sound financial plan. Your investments should serve the plan.


The mix of stocks, bonds and cash determines most portfolio behavior

The mix of stocks, bonds and cash (asset allocation) is the most important factor which determines the growth and level of risk in your portfolio in the long run. First, set aside cash for short-term spending. Then determine an appropriate mix of stocks and bonds based on your ability, willingness and need to take risk.


Since the future is unknowable, diversify to spread risk

Performance leadership among companies, sectors and countries is always changing. When you diversify across many companies in all sectors across the globe you do two things. You mitigate large losses from any single investment. And you participate in the investments which are going up.


Structure portfolios to pursue characteristics of higher expected returns

Decades of academic research has identified characteristics of higher expected returns in capital markets. First, stocks have higher expected returns than bonds. Among stocks, company size, relative price, and profitability largely drive differences in expected returns.


Investing costs matter

Market participants as a whole receive market returns minus the costs of investing. So the higher your costs the lower your expected returns. Consider the expense ratio (management fee) for the funds used, and other costs such as brokerage commissions and the fees you pay for my services.


Attempting to time the market is a loser’s game in the long run

Markets are incredibly complex systems involving many people and their emotions. Nobody has a reliable crystal ball to predict what will happen next. Rather than trying to continually determine when to get out and get back in, the wise strategy is to design a solid investment plan, implement it, then stick to your plan. The plan should be periodically adjusted to reflect changes to your ability, willingness and need to take risk. And it should include periodic rebalancing to get back to your target mix of stocks and bonds.


Real life investing returns depend in large part on investor behavior

You can have a well designed portfolio based on the principles above. But investing invokes strong emotions. To be a successful investor requires patience, self-control, discipline and perspective. You have to be able to tune out all the noise during market ups and downs and focus on what you can control.

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