A better way to invest in stocks

Our goal as a financial advisory firm is to provide you with a positive investment experience so you and your family can meet your unique financial and life goals.

To assist you as a successful investor, our firm has a set of investment philosophies and beliefs which we adhere to. These principles are based on evidence and historical data, not on forecasts or crystal balls.

It is important that you understand that the structure of your stock investments is based on the following evidence, which guides our advice:

  • Large US company stocks have averaged approximately 10% annual returns over many decades.
  • Small US company stocks have averaged approximately 12% annual returns over many decades.
    • Thus, as small company stocks return more than large company stocks, we allocate or tilt towards small stocks, to provide you with greater expected returns over the long run.
  • Value stocks outperform growth stocks over the long term.
    • Thus, we allocate more towards value stocks than most others, as this should provide you with greater expected returns over the long run.
    • Further, we recommend small value stocks and allocate away from US large company stocks based on this data of greater expected returns.
  • International stocks (companies based outside of the US in developed countries) outperform US large company stocks over the long term.
  • Emerging market stocks, which are companies based in lesser-developed countries of the world, outperform US and developed company stocks over the long term.
    • As International diversification provides greater expected returns as well as smooths out the volatility of just owning large US company stocks, we recommend a healthy allocation of non-US based stocks.
      • See blog post dated April 13, 2017 on the benefits of global diversification.
  • We implement our stock investment strategy primarily using asset class mutual funds because the type of funds we use give you the best chance to perform better over the long term. In an uncertain world, these type of stock funds provide you a greater chance of better returns than “actively” managed mutual funds, hedge funds or a set of stocks that most people hold.
    • See blog post dated April 6, 2017 for recent data on the underperformance of active money managers.

This does not mean that small stocks will always outperform large stocks. This does not mean that value stocks will always outperform growth stocks. We know and expect that these expected return premiums will not occur every year.

But we do know that these asset class return premiums have existed over many decades of historical data, some dating back to the 1930s.

For example, small and value stocks vastly underperformed large company stocks in the late 1990s. Then small company and value stocks far outperformed large growth stocks for years after.

Last year, US small value stocks far outperformed large US company stocks. This year, International and emerging markets are outperforming all US asset classes.

We cannot predict which asset classes will do the best over a year or even over a number of years. No one can.

We will monitor and follow the historical data and academic evidence which should provide you with the greater expected investment returns over the long term. We will remain disciplined and regularly rebalance your portfolio, so that your exposure to these asset classes remains in line with the investment plan we develop for you.

 

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