Intelligent Investing: Driven by Academic Research

Our fee-only wealth management advisors bring a combined 25 years experience, and some of the strongest credentials in the business.

With this experience, and the most credible academic research as our compass, here's what we know:

• Active managers historically underperform the market
• Past performance isn’t an indicator of future results
• Jumping from fund to fund, doesn’t work — the best results come from long-term investing
• Minimizing investment expense has a significant impact on overall performance
• Emotional responses to investment lead to underperformance over time

1. Passive, Low Cost Funds

As passive Investment Advisors, we use low-cost, passive funds to capture the returns in a broad range of asset classes across the entire market — including stocks, bonds and real estate. Academic research proves this approach results in better long-term performance, lower investment expenses, and greater tax efficiency than other investment firm approaches.

Those who practice active management believe it’s possible to exploit inefficiencies in the financial markets and purchase securities that are undervalued or sell securities that are overvalued. The goal of active management is to “beat the market” and thereby deliver performance that is greater than average return.

Unfortunately, academic research proves that the vast majority of investors taking this approach underperform compared to long-term performance in passively managed funds. In fact, most investors would be better off simply investing in an index fund rather than in actively managed mutual funds, as indicated by the Dalbar research highlighted below:

In fact, Morningstar reports that after accounting for risk, size and style, only 37% of active funds beat their benchmarks in both equities and fixed income. That means the overwhelming majority of 63% underperformed.

The following data from Standard & Poor’s shows that active funds generally underperform their benchmarks in both equities and fixed income.

 

Percentage of U.S. Equity Funds Outperformed by Benchmarks

Fund Category	Comparison Index	One-Year	Three-Year	Five-Year
All LargeCap Funds	S&P 500	51.52	52.37	62.95
All MidCap Funds	S&P MidCap 400	57.18	64.46	73.48
All SmallCap Funds	S&P SmallCap 600	58.07	58.40	67.68

Percentage of International Equity Funds Outperformed by Benchmarks

Fund Category	Comparison Index	One-Year	Three-Year	Five-Year
Global Funds	S&P Global 1200	51.92	60.19	60.40
International Funds	S&P 700	61.49	79.85	86.52
International SmallCap Funds	S&P World Ex-U.S. SmallCap	43.75	48.94	70.59
Emerging Markets Funds	S&P IIFCI Composite	70.19	82.09	89.71

Percentage of Fixed Income Funds Outperformed by Benchmarks

Fund Category	Comparison Index	One-Year	Three-Year	Five-Year
Government Long Funds	Barclays Long Government	70.00	91.30	97.67
Government Intermediate Funds	Barclays Intermediate Government	50.00	84.62	78.43
Government Short Funds	Barclavs 1-3 Year Government	60.00	83.72	80.95
Investment-Grade Long Funds	Barclays Long Government/Credit	80.95	86.87	92.38
Investment-Grade Intermediate Funds	Barclays Intermediate Government/Credit	63.79	80.81	79.56
Investment-Grade Short Funds	Barclays 1-3 Year Government/Credit	95.56	96.05	96.55
High Yield Funds	Barclays High Yield	78.95	83.21	88.62
Global Income Funds	Barclays Global Aggregate	71.08	85.71	76.09
Emerging Markets Debt Funds	Barclays Emerging Markets	79.31	68.42	43.75
General Municipal Debt Funds	S&P National AMT-Free Municipal Bond	75.56	78.31	93.90