Passive portfolio design begins with a discussion and analysis of our clients' current finances, financial goals, and their risk profile (i.e., their willingness, need, and ability to accept risk). From there we design a broadly diversified portfolio, utilizing passive asset class funds provided by Dimensional Fund Advisors (DFA) where practical, affordable and available (with smaller accounts or smaller dollar amounts we may use Charles Scwhab mutual funds instead).

Key Benefits

• Passive investing is based on Modern Portfolio Theory and the related decades of academic research,
• Since markets are efficient at incorporating all available information into prices, it is nearly impossible to consistently identify any market inefficiencies. It is also very rare that identified market inefficiencies can be exploited in a cost-effective manner.
• Since stock prices move in a random walk, it is nearly impossible to predict near-term or long-term price movements.
• Risk and return are related. Therefore, over the long-term , the market compensates investors in riskier assets with higher expected returns.
• Diversification is key to investment success. The addition of a high-risk asset to a portfolio can actually reduce overall portfolio volatility as long as the returns of the high-risk asset are relatively uncorrelated (or, at least, not highly correlated) with the rest of the portfolio.

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Copyright © 2004 Coston and McIsaac Investment Advisers, LLC
Last modified: February 02, 2007

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