THE POWER OF PASSIVE INVESTING
The vast body of academic research suggests that it is very difficult, if not impossible for investors to beat the market on a consistent basis over time. The approach of trying to beat the market, or “active management”, involves a host of factors that are harmful to an investment portfolio’s long term health including emotional trading, high transaction costs, and inefficient tax consequences. In fact, it is estimated that the average investment will trail the market by an amount close to the fees that are charged.
Passive investing is an approach that utilizes markets by harnessing their power over time. Some people also refer to this as “indexing” because the goal of these investment products is to match the performance of a specific market index. This disciplined approach avoids inevitable market timing mistakes, the high costs of active trading, high commissions, and highly emotional trading that could be destructive to the long-term health of your investment portfolio. You won’t see this disciplined approach practiced by the big Wall Street firms because, in our opinion, this is how they make their money – from you.
You may hear the claims throughout the financial press of performance that trounces the market. Hundreds of millions of dollars are spent on financial advertising each year. Most of that advertising touts the tremendous performance of the latest, greatest investment, but no one spends a dollar advertising that most of yesterday’s winning investments become tomorrow’s losing investments. But in reality that is exactly what academic research shows happens as high costs and emotional trading weigh down performance over time.
We think there is a better way. Academic evidence shows that low cost, low turnover, tax efficient, broadly diversified portfolios that simply seek to match the performance of the market outperform most actively managed investments over time. This is the philosophy that we stand by, and one we have implemented for the past 15 years. Our approach to growing portfolios is a little boring, but our clients like it that way. So do we.
We will partner with you to build a customized, passive investment portfolio that affords you the opportunity to harness the long-term power of the markets. There will be ups and downs, and some of the downturns can be unsettling. But working with you we will build a portfolio that can help you sustain short-term volatile markets while positioning you to reach your long term goals that we built in your comprehensive financial plan.