What’s our approach to investment management?

            Markets will go up…markets will go down.  80% to 90% of people that try to out-think the market lose.  What we do is the most conservative professional and scientific approach to achieve your financial goals. Playing the market as a whole, and using scientific evidence to allocate your funds in a more efficient manner, will allow you to “Sleep Better Now…and Eat Better Later”.

            Our funds are made up of every security that falls into pre-set quantifiable criteria that never changes. Therefore you can back test a passively managed fund 20, 30, even 70 years ago.  What’s fascinating is that over 5 plus years, there is a way to reasonably expect both short-term volatility and long-term returns.

            We diversify across several asset classes so that you are maximizing your long-term return while minimizing your short-term volatility based on your risk tolerances.

            Our customized investment approach consists of:

1.  We ask the right questions (this is not one size fits all) to determine:

                                    a.  Your financial goals.

                                    b.  Your Risk Tolerance.

                                    c.  Your investment portfolio.

                                    d.  Your time-line.

2.  We utilize the only family of funds which offers true asset allocation.

3.  We use only no-load, low expense ratio funds not otherwise available.

4.  Our scientific diversification model reduces risk and volatility.

5.  Our customized portfolios are based on acceptable levels of risk for you individually.

6.  We annually re-balance and re-evaluate your investment portfolio.

What is this “Scientific Approach”?

            We base our entire platform on the work of Drs. Fama and French, Robert Ibbotson, Donald Keim, and Nobel Prize winners Harry Markowitz (1990), Merton Miller (1990), Robert Merton (1997) and Myron Scholes (1997).  What their studies have shown is, over time, you can in fact show tendencies across various asset classes. Smaller stocks tend to be more volatile than larger stocks, value stocks tend to be more volatile than growth stocks, and the more volatile stocks tend to have higher returns.

What are “Asset Classes”?

            Our asset classes are based on a pre-set criteria using the following distinctions:

            Stocks (what we call “equity”) vs. Bonds (what we call “fixed”).

            Within stocks:

                        U.S. vs. International.

                        Large Capitalization vs. Small Capitalization.

                        Growth vs. Value.

            Within Bonds:

                        Long-term maturity vs. Short-term maturity.

            Capitalization is the aggregate value of the outstanding shares of stock for a company. We have pre-set limits as a specific percentile of the entire market which determine a “Large capitalization” company from a “Small capitalization” company.  We distinguish companies between “Growth” and “Value” based on their stock’s Book-to Market value. Companies with a higher ratio are considered “Value”, and those with a lower ratio are considered “Growth”. 

            We utilize 10 major asset classes to maintain a properly diversified portfolio:

                        U.S. Large Growth

                        U.S. Large Value

                        U.S. Small Growth

                        U.S. Small Value

                        International Large Value

                        International Small Growth

                        International Small Value

                        Emerging Markets Value

                        Emerging Markets Small

                        Fixed Income

Why is “Asset Allocation” important?

            The allocation (equity/fixed) is the only variable we can control.  We know, for example, that over many years, an 80% equity/20% fixed allocation should be more volatile, risky, and also more rewarding than a 20% equity/80% fixed allocation. This allocation is meant to remain the same until we reach certain breakpoints.

By this, we mean you should settle on an initial allocation and stick to it. You should not be calling in and suggesting we change from 60% equity/40% fixed to 70% equity/30% fixed because the market has done well.  This I called “timing the market” and defeats the purpose of everything we’re trying to accomplish.

Rather the opposite should be done. Let's say you have $ 1M and need $ 2M to retire (disregarding inflation and interest rates for this example). You figure that it will take 7 years at 10% return for you to retire, and select a 90% equity/10% fixed allocation.

In the first year of investing, you are fortunate to get a return of 63% (which our 100% equity/0% fixed portfolio did in 2003). Just because you went up 63% this year, doesn't mean you will go up, or down, or stay the same next year.

Now, in year 2, you have $ 1.63M and still only need $ 2M to retire. Therefore you only need to earn $ 370,000 during the remaining 6 years, an average annual compound rate of only 3.4%.  We would re-evaluate your earnings requirement and recommend a more conservative portfolio to preserve the “winnings” you already have and increase the likelihood of achieving your goal of retirement.

What is “Risk” and “Volatility”?

            Risk is defined differently by each individual.  We define “Risk” as the likelihood and speed at which an investment can lose value or approach zero.  Basically, the chance of a security losing its value is its risk.

            Volatility is the degree and measure of fluctuation within a security. For example, two securities were worth $1 a year ago.  Both are worth $2 today. However, security “A” went up to $5, down to $.20, then finally back up to $2. Security “B” went up $.01 every 3 days and ended at $2. 

            Both securities started and ended at the same place, but the owner of Security “A” got very excited, then very depressed before finally ending with the exact same amount of money as the owner of security “B”. “Risk” and “Volatility” are what keeps you awake at night! One of our main goals is to reduce risk and volatility.  We do this through proper diversification. 

Why are individual securities bad?

            Any individual security (any company’s stock) can become worthless!  No amount of technical or financial research can save you from events like accounting scandals, management scandals, lawsuits, PR crisis etc.  In 1998, if you put Enron’s financials in front of any savvy stock selector, he/she should have told you to buy this company! It was clearly in fantastic shape with a bright future. The same with Worldcom a year later. And we all know what happened to those companies.

            Any security, of any size, with any background or name recognition is one catastrophe away from becoming worthless. Every year, one in every 18 NASDAQ stocks and one in every 83 NYSE stocks becomes de-listed.

Why don't you just invest in US Small Value; which has returned 16.6% on an annualized basis for the past 35 years?

            Because it is wildly volatile and incredibly risky. When you are just into this asset class, you must understand that your investments could go down as much as 60% in the short-term (remember April, 2000), which most people are not capable of withstanding emotionally.  See “Risk” and “Volatility” above. This is the stuff that keeps you up at night! We have a better way!

What can we do to get the rate of return we need and keep our emotional sanity in the short-term?

            What noted scholars and Nobel prize winning economist have found is, you can see correlations between the asset classes in both short and long-term periods of time. For example, when US Large Growth goes down, International Small Value may tend to go up. Not necessarily to the same magnitude, but enough to “smooth the bump” of the US Large Growth decline.

            The US Stock Market as a whole has gone up over time (any 5+ year period).  Therefore, you should be investing in the “Market” as a whole, using asset allocation and diversification statistics to allocate your money to minimize risk and volatility in the short-term and maximize your corresponding return in the long-term.

            Markets will go up over long periods of time. Even when terrible things happen, a recovery period has always followed a down period to this point.

            While past returns have no predictive value, we can agree that asset classes as a whole are not individual securities and that, while you can't predict future returns to a percentage, we can expect asset classes to correlate to each other in a similar manner over time.

What’s the difference between “Fee only” and “Commission” Financial Advisors?

            Commissioned salespeople, such as most insurance agents or stockbrokers, are paid simply on transactions. When an agent or broker buys or sells something for you, they charge you a flat fee or percentage.

            As Fee only financial advisors we are paid solely on the value of the assets being managed, we have a vested interest in your success, when you do well…we do well.

How are you different from other “Fee only” Financial Advisors?

            Our approach is based on Modern Portfolio Theory (study of the market as a whole) and Efficient Market Hypothesis (market prices incorporate all relevant information). This is the scientific reasoning we use to construct our portfolio models.

            Our asset class based funds employ a disciplined passive management buy, hold, re-balance and re-evaluate strategy to enable you to achieve your financial goals with less market risk and volatility  Rather than an emotional actively managed buy, sell and hope strategy.

            Our portfolio, risk tolerance based matrices allow us to take averages and standard deviations of every possible investment period for each asset class.  This concept enables us to achieve proper diversification across each asset class to provide you with the most reasonable expectation to reduce short-term risk and volatility while maximizing your overall long-term return.

What is “Modern Portfolio Theory”?

            It's the philosophical opposite of traditional stock picking. Modern Portfolio Theory was created by economists to understand the market as a whole. The goal is to identify your acceptable level of risk tolerance and then find a portfolio with the maximum expected return for that level of risk. 

What is “Efficient Market Hypothesis”?

            It states it is impossible to beat the market because prices already incorporate and reflect all relevant information. If markets are efficient and current (especially with today’s technology and multitude of information available instantaneously) it means that securities prices always reflect all relevant information, accordingly there are no bargain stocks. Lacking a crystal ball, or Insider Information (Ask Martha), no one can predict how a security will perform in the future.

What’s the difference between “Active” and “Passive” Management?

            If 75+ years of market data have taught us anything, it's that people that try to time the market and select specific securities are almost always long-term losers. Stockbrokers “actively manage” a client’s account because they think they can outperform the market, or an index, or the broker down the street. Every year 80% to 90% of actively managed funds under perform the S&P 500 Index, and that's before commissions and expenses. Active management is based on “market timing” (when to buy and, when to sell) and “security selection” based on human emotions, hunches, or research. Further, of the literally thousands of active fund managers in America alone, how many do you think have outperformed the S&P 500 Index, every year for the past 10 years?  One!  Those don't sound like very good odds to us. 

Will we have on-line access to our account(s)?

            All accounts are maintained by Ameritrade and/or Charles Schwab, nationally recognized discount brokerage firms. You will have 24/7 access to all your account balances. 

Can I do this myself?

            Chances are you've already tried the “do it yourself” approach. So ask yourself, how did you do in 2000 and 2001 during the market decline? Compare your results to our “worst” model portfolio results for 12, 24 and 36 months in the “Model Portfolio Performance” section. 

            Further our asset class based funds are not available to the general public. Also, our scientific diversification model and asset allocation approach is proprietary and only available through our network. 

How do I get started?

            Please review all the information on this web site. We have provided extensive information concerning the unique investment concepts we utilize to reduce risk and volatility in the short-term and meet your long-term financial goals.

            Contact our office at our Toll Free number (800) 449-6976 or e-mail us. Please have available/provide the following information:

·        Answers to Risk Tolerance Questions.

·        Current Investment Brokerage Statements.

We will have an Investment Advisor review your current investment portfolio, financial goals, assess your risk tolerance, and design a personalized and appropriate financial plan to meet your objectives.

            Contact our office today…We have a better way!