Investment Strategy

Our investment strategy, based on our investment philosophy  is used to create specific investment portfolios uniquely suited to the client circumstances.  Our investment strategy process is as follows:

1. Set the investment asset allocation for major asset classes based on long-term investment goals, risk tolerance and time horizons.
2. Utilized low cost ETFs, exchange traded funds, that invest in broad segments of the markets. These are efficient and effective ways to invest across many market segments while using the benefits of diversification to minimize specific company risk.
3. Diversify across many companies, assets and geographies. Utilize Modern Portfolio Theory to enhance potential investment returns for each level of risk. Invest globally across a broad range of assets that do not move in unison.
4. Minimize turnover. This will help ease taxes and transaction costs.
5. Rebalance as needed to stay within targeted portfolio allocations.
6. Continually monitor financial markets. Seek out better investments. Utilize a proprietary systematic approach to identify risks or opportunities presented by the marketplace. Take advantage of these opportunities as appropriate within well-defined parameters.
7. Buy and own only investments with low fees with no sales commissions.
8. Monitor and maintain the right level of risk in the portfolio. Stay disciplined by cutting back positons to targets weights when prices exhibit strong and sustained gains to keep target weights in place.
9. Life changes will drive the major investment changes, not financial markets or the status of the economy. Over time our financial lives can change.  If or when that happens we will assess and make measured changes as appropriate to the investment portfolio.

Investment Philosophy

Our investment philosophy defines our core investment beliefs and drives our investment strategy. The Nason Hill Investment Philosophy includes the following tenets:

1. Maintain Meaningful portfolio diversification. Adequate diversification is very important and can add to risk-adjusted returns. We believe in and use Harry Markowitz’s Modern Portfolio Theory, which helped him win the Nobel Prize.  The concept is that by diversifying, an investor gets a benefit (reduced risk) at no loss of return.  He called it the “only free lunch in finance.”  Combining assets that are not highly correlated smooths out price fluctuations allowing for better risk-adjusted returns over the long run.  Maintaining diversification across a large number of companies, asset classes, and geographies is the best way to reduce risk. It also allows for a higher potential return for the same level of risk.
2. Passive investments are the best solution. Passive investment products such as low-cost broadly diversified index products have out-performed the vast majority of active managers such as mutual funds or customized stock portfolios. Active managers charge a fee to select a limited number of stocks or securities. We believe passive will continue to outperform because:
   1. Financial markets are very efficient, making it difficult to identify miss-priced individual securities.
   2. It is very difficult, over a long period of time to select specific stocks that exceed the index returns. Several studies show that the performance from active management fails to beat passive index returns. Traditional index returns exceed the return of over 80-85% of active managers.
   3. Picking a stock manager that can exceed the broad index returns is very difficult and has a low probability of success. Many studies have shown the average manger lags the index returns by at least the extra cost of their fund fee along with the costs of actively trading. Studies show it takes 20-30 years to determine if skill or luck contributed to the excess return.  By that time most managers are looking to retire, and the funds have gotten too large to manage effectively.
3. Understand what you own and why you own it. This is vital to further managing risk. Do not buy or own investments you do not understand.
4. Diligently maintain a low level of fees. Fees and taxes can consume a meaningful amount of your investment return. Across the industry fees vary a great deal.  Investing exclusively in low cost products will produce results that exceed the vast majority of funds. (link to future article Why Fees Matter.)
5. Utilize exchange traded funds. ETFs provide superior diversification and lower fees than mutual funds or paying an advisor to pick stocks to form a custom stock portfolio.  They also have inherent tax advantages over mutual funds.
6. Asset allocation determines 90 percent of long-term returns. Setting the long-term asset allocation and staying in those assets over time is what drives portfolio returns and the variability of returns.
7. Successful investing does not require forecasts. Good advice is not about predictions. No one can predict the future consistently. It is not necessary.
8. Capitalism and corporate earnings growth creates wealth. Owning a share of growing companies around the world is the primary driver to long-term capital appreciation.
9. Returns and risk should link to the investment time horizon. Risk is more than short-term price volatility. Risk is also the probability of not reaching your investment goals or not increasing the purchasing power of your money over the investment time horizon. For example, if the investment horizon is thirty years, the focus should not be on monthly volatility
10. The average investor meaningfully fails to achieve even close to market returns. The primary reasons are high fees, the inability to create and implement a long-term plan and sub-optimal portfolio construction.
11. Investing should not be exciting. Short-term trading by its nature is exciting, speculative and often unproductive. We are long-term investors.
12. Do not mistake activity for making progress. Often doing nothing and sticking with the current investment is the best course.
13. Avoiding or minimizing poor investments is crucial. Big winners are exciting, but minimizing the losers is often the biggest contributor to successful long-term results.
14. Maintaining the right level of risk in the portfolio is imperative. It enables the ability to weather tough periods and to possibly buy additional riskier assets after price declines.
15. Aggressive activity based on a short-term outlook is counter-productive. Staying in the market over the long run is the source of returns, not trading in and out of the market.

We provide an ongoing assessment of your investment portfolio to help discern and mitigate risk.  Some examples of the ways we do this include:

• Asking questions to determine major risk factors to your financial security
• Looking at the proper level of insurance that is right for you

Our goal is to flush our various scenarios to evaluate possible risk and how they can be managed.