When choosing a financial advisor, it’s critical that you agree on a common set of beliefs to ensure that proper expectations are set. Therefore, I felt it would be helpful to make my specific planning and investing principles readily available. Below you’ll find my Investing Principles. If you’re interested in my Financial Planning Principles, click here.
Your Financial Plan Determines Your Portfolio – We build financial plans with your goals as our primary compass. Once we’ve established what you would like to achieve and how closely you’re tracking toward those goals, we will set portfolio expectations. We will be clear about our portfolio assumptions that include a combination of conservative historical market performance and your comfort level with regard to various investing risks. We will then develop specific portfolio recommendations.
Evidence-Based Investing – We believe in data-driven, rules-based investment strategies; consequently we seek to capture the return provided by the market. In most cases, we do not believe in hiring active fund managers as historically, their performance has not warranted their fees. SPIVA conducted a study that includes data over the 15-year period ending Dec. 2017. In short, 92.33% of large-cap, 94.81% of mid-cap, and 95.73% of small-cap managers trailed their respective benchmarks. Therefore, as a general rule, we seek to save cost and taxes by utilizing funds that are not actively managed. This belief system removes the “underperformance discussion” that is so common in our industry. We favor history over luck and evidence over narrative.
Note: In an effort to be intellectually honest, I do believe that it’s certainly possible for active managers to beat benchmarks. The problem is that it’s impossible to know in advance who those managers are going to be. And considering less than 10% of managers have outperformed over full market cycles, I do not view it as a prudent investment strategy for your portfolio.
Costs Matter – We believe that a diversified portfolio of low-cost funds and ETFs will serve you better in the long run. Our goal is to maximize your net return on investment. There have been numerous studies that have shown the correlation between fees and performance. Summarized, low-fee funds typically perform better than high fee funds. For one such study conducted by Morningstar, see here.
Taxes Matter – Taxes and transaction costs can also place a significant drag on performance. If a fund has an average turnover of 25% of the fund per year, this means that on average the fund will turn over 100% every four years. There are two costs associated with this turnover, transaction costs and taxes. Transaction costs are those costs that it takes to buy and sell securities which are passed on to you as the investor and likely does not show up anywhere in a prospectus. But an even larger cost is the taxes associated with this turnover. When managers sell positions with capital gains, this tax liability is passed on to you.
For example, if a fund returned 8% according to their fact sheet, but they are recognizing capital gains of 8% on average due to the fund’s turnover, then each year your net return could be reduced by up to 1.84%. For more on these two costs and various other costs, click here. We seek to minimize all of these costs as much as possible. Disclaimer: As federal and state tax rules are subject to frequent changes, you should consult with a qualified tax advisor prior to making any investment decision.
Behavior Matters – The greatest portfolio in the world won’t do you any good if you can’t stick with it. As such, we will not chase performance or try to time the market. Making constant changes to your portfolio is more likely to impede performance rather than help it. This is also why aligning your portfolio with your financial plan and risk tolerance is so important.
Simple Over Complex – There are many firms that want to convince you that you need a more sophisticated portfolio. These “sophisticated portfolios” often cost much more and are rarely worth it to the client. Revisit the Morningstar report or the SPIVA study above.
Diversify Your Portfolio – Owning a diversified portfolio is often referred to as “the only free lunch in investing”. While that statement warrants merit, it is important to understand that there will be times that owning a diversified portfolio will look foolish. We do not know when those times will be, but we know that chasing performance and trying to predict when certain assets will “outperform” is not a viable portfolio strategy.
We are Forecast-Free – While we certainly have views on the relative health of the markets, we do not attempt to forecast the market. There are thousands of very smart people that have tried and been proven wrong time and time again. Instead, we use hypothetical rates of return that are conservative by historical standards and then construct financial strategies that you can feel comfortable owning.
Ignore the Noise – Market news is almost never worth acting on. Our sincere hope is that due to our collaborative approach and planning first philosophy, that you might be encouraged to turn the market news off and enjoy life a little more. If your portfolio is in alignment with your goals and time horizon, then there should be little reason to make changes regardless of what’s in the news at the moment.
Your Strategy Should Pass the “Sleep Test” – If what you are invested in keeps you up at night, then you probably need to revisit your portfolio strategy. Knowing your comfort level toward a specific strategy is critical to your long-term success.
I Follow My Own Advice – As a steward of many of my client’s entire financial lives, I think it only makes sense that the entirety of my own investable net worth is invested in accordance with these investing principles as well. So, that’s exactly what I do.
Given that you may work with your advisor for decades, knowing what to expect from your advisor and their belief system is a defining factor in the success of that relationship. This is why our first meeting is simply a meeting to get to know each other and see if we can agree philosophically. Assuming that’s the case, we can proceed into discussing specifics of your financial situation.
A quick note: I interchangeably use the terms “I”, “We”, “Us” and “Our”. The “We”, “Our”, and “Us” that is referenced is me (Ashby Daniels) plus any member of the Shorebridge Wealth Management team or that of Raymond James Financial Services, Inc., though not any specific person. These views are my own and are not intended to be representative of Shorebridge Wealth Management or Raymond James Financial Services, Inc. Please visit my Disclaimers page for additional details.
 There are occasions where we may utilize an actively managed fund or individual stock due to a variety of circumstances as long as we deem it to be in the best interest of the client. This is often due to the client owning a position prior to meeting with us and the selling of this position may cause a significant taxable gain.
Investors should consider the investment objectives, risks, and charges and expenses of an exchange-traded product and/or mutual fund carefully before investing. A prospectus which contains this and other information about these funds can be obtained by contacting your financial advisor. Please read the prospectus carefully before investing.
Diversification and strategic asset allocation do not ensure a profit or protect against a loss. Investments are subject to market risk, including possible loss of principal. The process of rebalancing may carry tax consequences.
Join the Retirement Field Guide Newsletter
Subscribe below to get Ashby's list of the best retirement resources from around the web.