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 Q: Why is being an independent advisor important? A: Unlike brokerage and insurance companies, as independent financial advisors we do NOT accept sales commissions, soft dollars, or use propriety investment products. Therefore, we work only for you, and you receive unbiased, objective advice. Q: What is your fee structure? A: Asset management fees are negotiable but start at .75% annually on the value of the accounts under management. Starting at $75/hr, we also offer portfolio reviews. Q: What do I get?
Q: Can you also help with my 401k or 403b plan? A: Yes. While the firm cannot directly manage those accounts, we can provide advice on how to invest within the plans. This service is free to existing clients. In regards to constructing and managing portfolios, we focus on asset classes, not individual stocks or bonds. Q: What is an asset class? A: An asset class is a group of investments with similar characteristics that generally re-act similarly to economic and political events. Stocks and bonds are the most commonly identified asset classes. However, both categories can be further divided in smaller groups. For example, stocks can be subdivided into large company and small company stocks; bonds can be subdivided into government, corporate, municipal, and mortgage bonds. Q: How do we use asset classes? A: We buy mutual funds that invest in various asset classes, creating a highly diversified portfolio with an eye to maximizing your profit while minimizing your risk. A primary goal with every client is to reduce unnecessary risk, and if needed, reduce total risk. Q: What is Risk? A: Standard Deviation is the statistical measure most investment professionals use to evaluate risk. Basically, it measures the variability of your account value, or the bumpiness of your investing road. Some assets, like stocks, are called risky because their value can change dramatically in a short period of time. We try to combine risky and conservative assets into a mix that balances a client's need, desire and ability to accept risk. Diversification is the key to reducing risk and is our best friend in an uncertain world. Q: Why Diversify? A: Diversification significantly lowers portfolio risk, often with little or no sacrifice in performance. Diversification reduces risk because asset classes react differently to various economic and political changes. (For example, from 2000-2002 U.S. stocks were down, but bonds and real estate were up.) Holding a mix of investments "smoothes out" performance. We live in a world of uncertainty. While it may be possible to define the future in terms of probabilities (I think there is a 10-20% chance of deflation, or there is a 50% chance of a moderate economic recovery), the truth is we really don't know what will happen with great certainty. Diversifying your investments provides protection against many future scenarios. Traditional stocks and bonds do well in a moderate growth economy and with moderate inflation. These conditions dominate over long time periods. Thus, traditional stocks and bonds form the core of every portfolio. However, both stocks and bonds can be severely hurt by internal shocks such as deflation, high inflation, economic stagnation, rapidly rising interest rates or the bursting of an asset bubble. They can also be hurt by external shocks such as terrorist attacks, war, or currency devaluations. We help you diversify your holdings, surrounding the core with investments that hedge against both internal and external shocks. Any long-term investor will experience tough markets, but we construct your portfolio to weather harsh conditions. Through diverse investments, we adhere to one of the keys to growing wealth: shelter it from hard times. The focus on asset class returns, risk reduction, and diversification leads us naturally to Asset Allocation. Q: What is Asset Allocation? A: Asset Allocation is a method of portfolio management that spreads investments across multiple assets classes. Like traditional portfolio management, the goal is to diversify, placing your eggs in a variety of baskets. Unlike traditional portfolio management, our process focuses on portfolio structure and NOT on stock picking or market timing. Relying on stock picking or market timing rarely improves portfolio performance; in fact, such go-by-the-gut strategies usually decrease portfolio value. At the heart of the issue is the type of asset classes present in a portfolio. If a person owns stocks, he or she will realize performance similar to the stock market. If he or she own bonds, then he or she will get a return similar to the bond market. Many stock pickers would have you believe they can help you "beat the market." The fact is the great stock-pickers rarely out-perform market trends for long. Instead, their clients end up chasing returns, making moves on hunches, and pursuing last year's hot stock or mutual fund. Rather than try to beat the market, we use strategic asset allocation. Our method helps you define your portfolio in terms of asset classes. A percentage of the total portfolio is devoted to each appropriate asset class. Strategic asset allocation helps you stick to your original plan through thick and thin. The allocation should change only if the investor's circumstances change or a new asset class becomes available and attractive. Such a strategy takes emotion out of the equation. Asset Allocation brings the focus back to what is really important: 1) diversification 2) having an investment plan and sticking to it. Asset classes, not individual securities, are considered when building portfolios. Mutual funds are used to invest in the asset classes the firm considers useful. Q: What is a Mutual Fund? A: A Mutual Fund is a corporation formed specifically for the purpose of buying investments; it is an investment company. Funds must register with the SEC (Securities and Exchange Commission) and are subject to extensive regulation. Each fund buys a group of investments for their portfolio. The variety of mutual funds is as endless as the ways you can combine the existing stocks and bonds of the world. Investors in mutual funds buy shares of a company and thus buy into a portion of the investments that the company owns. The value of an investor's shares is tied directly to the underlying investments. The share price is called the NAV (net asset value). Unlike stocks that change price continuously throughout the day, the NAV is calculated at the end of every trading day. Q: Why invest in mutual funds rather than individual securities? A: Mutual funds provide low cost diversification and access to otherwise unreachable asset classes. By definition, a mutual fund holds many securities providing instant diversification. Owning a single or only a few individual stocks or bonds is very risky. As we have seen in the recent past, corporate bankruptcies can happen fast--Enron, WorldCom, Global Crossing, United Airlines--wiping out an investor's hard-earned money. Holding broadly diversified mutual funds insulates you from the economic bad times of one company, country, region or asset class. Q: Why not create your own mutual fund? A: It may seem smart to cut out the middleman and create your own fund. However, this has several disadvantages. First, a fee is charged every-time a stock, bond, or mutual fund is bought or sold. To diversify, someone may wish to buy 20-30 stocks. However, each purchase costs money and transactions costs can rapidly erode a portfolio's value. A mutual fund allows a person to buy many stocks for just one transaction fee. Second, some asset classes are unreachable to individuals because the underlying investments are too risky on their own or the cost of purchase precludes diversification. For example: Foreign Bonds are a risky, but useful asset class. Purchased individually, the risks are extreme. Purchased through a diversified mutual fund, the default risk is greatly reduced and the asset class becomes useful. They are a good diversifier within the bond category. Q: Active Funds vs. Index Funds A: In the mutual fund universe, there are two competing philosophies and two corresponding groups of managers: active managers and index managers. Active managers believe they can, through market-timing and superior stock-picking, outperform the market. Index managers believe markets are efficient and their goal is to manage a fund that replicates the performance of a particular market index. For example, Vanguard's flagship mutual fund tracks the S&P 500; it buys all 500 stocks in the index. They do not try to discriminate between "good" and "bad" stocks. Instead, they aim to capture as much of the market's performance as possible. Q: Why use Index Funds? A: The index fund strategy may sound naïve and ineffective until you look at the hard facts. Performance, low costs, and tax-efficiency surpass actively managed mutual funds. Please read The Advantage of Index Funds section of this website for complete information.
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