The Problem
The financial media and Wall Street often talk about short-term trading strategies to “make you rich quick”. Unfortunately, these instant gratification investment ideas of trying to time the market are riddled with problems and tend to support Wall Street’s business of selling products to investors rather than providing investment advice. The end result of many academic studies and empirical evidence over the years shows us how difficult it is to successfully time the market over and over again. It is simply not a sustainable investment strategy.
Where Do We Go From Here?
Our Philosophy
SCM believes the answer involves understanding that financial markets are impossible to continually predict in the short-term. We utilize a diversified investment strategy based on academic research in financial and market theory. Grounded in Modern Portfolio Theory, the following tenets become pillars of a successful investment strategy.
- Portfolio Theory, asset allocation, and diversification are the best ways to build a successful portfolio. These are items you can control.
- We believe that markets work over the long-term. Don’t try to predict the market but let it work for you. Our strategy provides market returns while active management is expensive and does not earn its keep.
- Returns are commensurate with risk over the long-term. We help you achieve a return commensurate with your risk tolerance.
- Investing is a long-term strategy.
- Market timing is not repeatable over the long-term horizon of an investment plan.
- We use low-cost, institutional mutual funds. Studies have shown that low cost funds are more efficient for the client and outperform their higher cost peer funds. Usually funds creating these high costs are engaging in market timing and active management with high turnover of assets.
Low Cost Institutional Funds
The core principles of our investment philosophy come from the world of academia, not Wall Street. SCM believes the best way to build a long-term portfolio is by using no-load, broad market mutual funds. These ideas were pioneered by Dimensional Fund Advisors (DFA),which was started from academic research by Nobel Laureates to provide institutional investors a practical way to take advantage of their multi-factor approach. SCM is approved to offer DFA mutual funds to our clients. We also use other low cost mutual fund families with no loads or commissions, such as Vanguard.
Custom Investment Portfolio
Before you start a major endeavor, it is imperative to have a detailed plan. Investing is no different, and the development of a plan is a critical step to achieving success in your portfolio. We create an Investment Policy Statement to serve as a road map for managing your portfolio. This helps to identify your goals, risk profile, and timeline, which ultimately creates your custom investment portfolio.