We are Advice-Only financial advisors, which means that instead of taking over our clients’ accounts and directly managing what to buy & sell, we show our clients exactly what to invest in and how to invest in their accounts.
An investment philosophy is the set of core beliefs, strategies, and principles that guide your investment decisions. Having an investment philosophy in place allows you to stay on course during both good times and bad, when emotion can sometimes get in the way.
Abundo believes few can beat the market over the long run, so we recommend investing in the whole market using the most tax-efficient, lowest-cost way. A diversified basket of low-cost index funds is the best way to achieve this.
Our investment philosophy is more than just a strategy or a checklist; it’s our guiding principle in how we recommend our clients to invest for long-term growth. Here is our process without nerding out too much.
Table of Contents
Index Funds
The best long-term investment strategy is to invest in each major asset class of the market while paying the least amount of fees possible.
The investment portfolios we’ve created for our clients are built using index funds that track a market index for an asset class. The typical index fund is made from a collection of hundreds or even thousands of stocks all within the same asset class or category of stock.
We avoid actively managed funds since they are tax-inefficient and usually actively managed by highly paid fund managers who pick the stocks they think will perform the best, which imparts a higher cost to the investor.
Higher fees do not necessarily mean better performance. Years of data have shown just the opposite. When you account for the embedded fees, consistent research has shown that actively managed funds produce worse returns over the long term compared to index funds.
From Principles to Strategy
The principles above can be applied to several different investment strategies utilizing index funds. The strategy we have chosen is to utilize a 3 Fund Portfolio as our core recommendation for Abundo clients.
Like any index fund-based strategy a 3 Fund Portfolio allows you to invest with low costs, broad diversification, and tax efficiency. Where this approach is different from many other indexing strategies is in its simplicity.
Many advisors recommend complex strategies that keep you dependent on them. Unfortunately, these strategies do not guarantee better performance over time than simpler portfolios, but they do guarantee more complexity and cost. We lead with simplicity to empower you to be able to better understand your investments while minimizing your ongoing work and expenses.
One Size Does Not Fit All
Every client’s financial needs and how they feel about risk are different. We match a client’s risk tolerance to the asset classes that reflect this tolerance and recommend the percentage of each asset class that should be in their portfolio. This allocation can be updated as they pass significant milestones in their lives or change their tolerance to risk over time.
We passionately believe that risk plays an important role in choosing the right portfolio for our clients. And, the modern portfolio theory has also guided our belief that portfolios should be built around trying to achieve the best risk-adjusted return.