A Philosophy You Can Stick With

Blog post #479

“The important thing about a philosophy is that you have one you can stick with.” 

~David Booth, founder and chairman of Dimensional Fund Advisors (DFA).

That was the beginning of a blog post I wrote in July, 2013, almost 8 years ago. The philosophies and concepts from that blog post have endured the test of time.

Prior to founding this firm in 2003, after the tech bubble crash, I spent many years researching how best to provide investment advice. How would WWM be different? How could we provide a better experience for our clients than they were having with their existing financial advisors or by investing on their own?

I read extensively. I went to conferences. I attended my second AICPA Personal Financial Planning conference, in Philadelphia in 2001. I went from exhibitor to exhibitor and talked to many firms. And then it happened. I found the book that would change my business life, and the lives of our clients. It was my “aha” moment.

On the Friday afternoon train ride after the conference ended, I started reading “The Only Guide to a Winning Investment Strategy You’ll Ever Need,” by Larry Swedroe. I could not put it down. I read until late Friday night and throughout the weekend. I had found an investment philosophy that we could stick with. Today, we still strongly believe in many of those concepts.

For almost 20 years, we have strived to provide clients with an investment and financial planning experience that would enable them to meet their financial goals. We have used a consistent market philosophy and systematic investment process that provides transparency and clarity, which can increase your confidence that these strategies will deliver upon their objectives over time.

Many people view investing and the stock market as trying to make accurate predictions or forecasts.

They may ask, is now the right time to get into the market? Is now the right time to buy Apple, Google or Netflix? Is it safe to invest now, since the economy seems to be recovering? Great, in which case I’m going to move money from cash into stocks. But what if the market has already made its big move? How do you know when is the right time to buy or sell?

We take a different approach. One that is rational, understandable, disciplined and consistent. Instead of trying to make predictions and guess which stocks will do best, our strategies rely on decades of research into the expected returns that have benefited investors over the long term. Having a realistic view of the markets can help take the guesswork out of investing. You should be able to relax more by knowing that your strategy is built on a solid philosophical framework and a strong track record.

Instead of trying to predict the market, we work with you to determine an appropriate allocation to stocks, based on your needs, goals, timeframe and willingness to take risk. We view your life and your finances in a comprehensive manner and try to help you with advice as you need it.

Once we determine an appropriate allocation to stocks based on your individual circumstances, we design a broadly diversified portfolio of stocks which covers many asset classes, both in the US and globally. We strive to increase your expected returns by giving greater weight to small cap, value and high profitability stocks in US and International stocks. We don’t recommend this because we think these asset classes will do better over the next 6 months, but because they should do better over the long-term.

We know the future is uncertain. This is why we recommend broadly diversified investments, in both stocks and fixed income, as well as utilizing mutual funds and ETFs with very low costs. We strive to control those things which are controllable.

We utilize investments with clearly defined parameters, so that we can help you to understand the range of outcomes and what you are invested in. We do not invest in hedge funds or alternatives that are like black boxes, where we don’t know what’s inside. This transparency should enable you to invest with greater confidence.

Although the US stock market has returned about 10% a year on average, returns for individual companies and individual years can vary wildly. It’s always important to look at the big picture. A huge win on an investment bet today doesn’t mean much if you lose it tomorrow.

We spend a lot of time talking with our clients. We educate our clients about our philosophy and how markets work. If you are retired or withdrawing from your portfolio, we work with you to develop a withdraw strategy that meets your goals. We want you to realize there will be down markets, as they occur every 3-5 years, on average. We want you to be prepared to handle these periods, so you can stick to your long-term financial plan. We want you to be able to stay in the markets. Investing is a lifelong journey.

Having a philosophy that we believe in enables us to be more disciplined and helps you to adhere to your financial plan. We are fee-only financial advisors. This enables us to be independent and always act in your best interest.

If you have an investment philosophy you can understand and stick with, you can focus on activities within your control. You can remain diversified, minimize your fees and costs, and determine your savings rate (or withdraw plan), as well as your long-term asset allocation plan.

We hope that sticking with our philosophy helps you to feel comfortable and secure.

Talk to us. We want to listen. We want to assist you, your family members and friends.

Looking forward and backwards

Blog post #478

We often find things when and where we least expect to.

This past weekend, I attended a Bar Mitzvah ceremony for my cousin’s son.  I was one of less than 20 people who were physically in attendance.  Instead of hundreds gathering, it was mostly virtual.

Prior to the service, I read a few pages of quotes at the beginning of the prayer book. Two of them particularly resonated with me. While these are not directly related to financial or investment matters, each could be relevant to your financial well-being and your financial future.

Life is a continual process of getting used to the unexpected.

~Unknown

We know that the future is unknown and unpredictable. Change and unexpected events are part of our personal lives, as well as in financial markets. The world keeps changing. You must make decisions all the time. Some are big and important, some are small. Change is constant. We can help you deal with change and the unexpected.

Our firm’s investment and financial planning philosophies are rooted in accepting that we can’t accurately predict the future. We recognize that market timing and individual stock picking are not the best strategy for the core of your long-term portfolio, to enable you to reach your goals.

We plan and develop strategies, such as how much risk you need to take, that are not dependent on our ability to predict the future.  These should help you to get used to the unexpected things that occur in your life, as well as in the world and the financial markets.

Life can only be understood by looking backward.

But life must be lived by looking forward.

~ Menachem Mendel, 1800s Rabbi

This is logical and simple. Financial decisions must be made looking forward, but as this and the first quote tell us, we don’t know what the future will look like.

We don’t know what interest rates or inflation will be. We don’t know what broad stock market returns will be over the next 1, 3, 5 or 10 years.

We do know that we can learn a lot by what has happened historically and financially in the past.  We can use the past, which we study and try to understand, to provide you with advice and recommendations for the future.

  • We use historical financial data to help us develop financial strategies. We look to the past, to help us plan for your future.
    • Financial history shows that broadly diversified, global portfolios have outperformed the S&P 500 (US large companies) over the long-term. Thus, we recommend broadly diversified portfolios to our clients.
    • Financial data tells us that mutual funds and ETFs with much lower than average expense ratios outperform those with much higher internal expenses. Thus, we use less expensive investments when possible.
    • We know that interest rates are near historic lows, so you should be refinancing any debts that you have.
  • We know that risk and return are related, so we try not to take excess risk with fixed income investments, as these are the “safe” foundations of your portfolio.

We strive to provide you guidance and advice that will be timeless, that will be effective for years into the future. We don’t advocate fads. We stress diversification

A diversified portfolio may not be exciting at times, but it should help you reach and maintain your goals.

Talk to us. We want to listen. We want to assist you, your family members and friends.