The many potential financial instruments and techniques are like the maintenance performed in the lower levels of a ship. At best a tax maneuver or other “smart move” can make things work a little better, like lubricating the steering mechanism. Real progress comes from building wealth through disciplined investment contributions and debt payments. Building and enjoying wealth means contentment with appropriate allocations between amenities of life and financial progress. Even investment performance that correctly balances risks and rewards is only prudent. The investment return’s impact is limited by the amount of resources allocated to investments.
We have an investment style we have used for a very long time. It is founded on multiple studies by economists and other famous financial people. We continue to believe that diverse portfolios of company stocks offer the best opportunities for long term investment performance. We believe that including diverse portfolios of bonds can act as a mitigating influence for volatility stocks have historically produced. And, we believe there is value in professional active management, as it is available in mutual funds.
There are reasons we believe mutual fund management is a valid approach. Their performance is well researched over many years. We can “see their numbers” clearly. We can also find a substantial body of information about the corporate characteristic of the management companies behind those results. In the years since Resource Advisory Services was founded, 1985, the list of mutual funds has continually evolved. Nevertheless, there are numerous mutual fund families, and even specific mutual funds, that have been represented for practically the entire history of this firm. These mutual funds have internal expenses, which are an important influence on our clients’ ultimate results. We are aware of these, as you can and should be. Ultimately, we want to know that the expertise our clients get through these internal expenses is an appropriate use of our clients’ resources.
Because mutual funds can be bought in relatively small position sizes, we can diversify client portfolios among mutual fund managers. Many people think of broad diversification in terms of stocks, bonds, real estate and a variety of other instruments. Diversification among investment managers is another layer we consider important. Two mutual funds may own the same stock or bond, with very different reasons for including that instrument. Accordingly, there will be different circumstances that prompt the sale or additional purchase of that security. This is another kind of diversification that is available through the ability to own a number of relatively small mutual fund positions.
There are a number of mutual fund categories we also like to use for diversification. There are large, mid and small company funds. There are international funds and U.S. funds, although we think these national lines are much less clear than they were several years ago. There are methodologies for selecting companies with long histories of growth versus researching the companies for value that is not yet recognized by the “markets.” This is the classic difference between growth and value styles. Mutual funds are grouped together by characteristics like these that we can study and understand.
We begin with an intention to include several categories of mutual funds in portfolios. Then, we can compare mutual funds that have similar category characteristics and choose those we consider best among their peers. We work to select the best managers, because this means we are basically using the internal expenses of the mutual funds to acquire the best managers relative to the costs – efficiency. This is the way we intend to build your portfolio.
We also have an extraordinary commitment to holding portfolios through whatever market conditions prevail at any given time. There have been at least six market crises since the formation of Resource Advisory Services. We have been steadfast through all of those. We have weathered the days when people were convinced stocks had to be sold, and then watched as markets recovered in ways that were far more dramatic than could be imagined on the worst days. When we felt the pressures to “move into tech stocks,” in the late 1990s, we resisted very strongly. We do not restructure portfolios quickly under pressure.
When a client insists that we sell a portfolio, we will. For us, it is a painful experience, because it runs against our core beliefs about portfolio management. To be true to our beliefs, you can expect us to advise against selling securities under pressures of a difficult market. You will always have authority to sell or buy securities on your own. If we are not available or you feel our advice is resistance you do not want to confront, you should sell on your own.