Active vs. Passive Management

Evidence Based Approach

A more appropriate concept is conventional investing strategy versus evidence based approach. The investing strategy is based on Nobel Prize winning theories of investing. Research and academia has shown majority of active managers fail to outperform and beat their corresponding index. This is due to the inconsistency that any manager can consistently time markets and chose individual stocks. By taking emotion out of the investment strategy and sticking to a strategy that works, has shown to be successful over time.

Why not just invest in Vanguard ETF’s or Index Funds?

For a retail investor this may be a good option as they are low cost and fulfill the index criteria for passive investors. The issue lies within the fund and how the index is managed. Our investment strategy alleviated the “reconstitution effect” that retail investments possess.

Reconstitutioning over time causes securities within an index to migrate from one asset class to another (such as from small cap to large cap). The index’s characteristics may be significantly different 11 months after the reconstitution due to securities moving. An index that purports to represent a certain asset class may not offer thorough, consistent exposure to the underlying risk factors. In simple, looking at a portfolio that takes into account these factors compared to a Vanguard portfolio, you will see the overall effect of the portfolio performance enhancement. Other factors are the tilts within the indexes that academia has shown to have additional premiums to your investment performance.

Non Discretionary

For those investors who want to continue monitoring and watching their accounts, this strategy could be suitable for your situation. We communicate with our clients before every trade is made and explain step by step the strategy behind our decision process. Working with our clients and partnering with them is important as they appreciate that we customize each situation. We do not exit out of each position to simply invest their money in a cookie cutter approach. Our goal is to make out clients comfortable and help them reach their goals as safely as possible. Controlling, taxes, fees, and the risk taken in the portfolio is our priority.

Asset Location (Tax Aware Allocation)

The importance of diversifying your tax situation is important at retirement. Creating tax diversification is as important as selecting a proper investment. By developing and understand your specific situation currently and in retirement, you can help elevate some of your tax burden now and forever. Identifying where to locate certain investments and how to balance the portfolio will be crucial in achieving the goal of financial independence.