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Investment Philosophy

We base our investment philosophy on Modern Portfolio Theory (MPT) and passive asset class investing. Primarily using Dimensional Fund Advisors (DFA) asset class funds allows us to create structurally diversified investment portfolios based on the tenants of MPT.

What Is MPT?

MPT is an investment theory created by three world-leading financial economists (who received a Nobel Prize for their contributions). In fact, their theory is so highly regarded that it was adopted by the American Law Institute (ALI) as the standard by which advisors should invest assets.

MPT’s three major tenants are:

  • Markets are efficient. Because new information quickly affects stock prices, it is extremely difficult to exploit market anomalies.
  • Expected return and risk are related. Riskier assets provide higher expected returns as compensation for taking greater risk.
  • Diversification is key. High-risk, low-correlating assets can reduce a portfolio’s volatility and increase expected rates of return. Passive asset class fund portfolios can be designed to (over time) yield the highest expected returns based on a given risk level.

Who Is DFA?

Dimensional Fund Advisors is an investment firm dedicated to delivering returns through strategic portfolio management and low-cost, low-tax trading. While DFA’s funds are generally unavailable to individuals, DFA does work with advisors who share their beliefs in the areas of diversification and asset class characteristics.

Our partnership with DFA benefits our clients in many ways:

  • Their passive asset class mutual funds help us provide the most precise exposure to the asset classes we use to build your portfolio.
  • Using DFA’s mutual funds (as opposed to index funds) allows us to have greater control over asset allocation. This helps us more accurately define and manage your portfolio risk.
  • DFA’s asset class funds give us the ability to design more diversified portfolios while providing focused exposure to certain market risk factors. Better portfolio diversification leads to reduced overall risk.
  • DFA focuses on capturing expected rates of return in the most tax-efficient and cost-effective manner possible. This is achieved through intelligent trading and state-of-the-art portfolio design.