MMWM is guided by several core beliefs that effect the decisions, plans and investments we recommend. These include:
Planning:
| Written Plan: “The wise man bridges the gap by laying out the path by means of which he can get from where he is to where he wants to go.” - John Pierpont Morgan Much of investors success comes from having a written plan and a vision of what success is to them. Walt Garrison said if you don’t know where you are going; how will you know when you get there? We believe you will significantly increase your chance of success by implementing strategies after identifying where you are and where you want to go. Likewise, drifting along without goals and a well defined plan is a recipe for failure. Efficient use of a financial model allows proper integration & coordination of goals as well as helps identify and solve problems before they occur. |
| Goals: “Goals are dreams with a time line”, it is imperative that you write down your specific goals that will help you reach for your dreams. |
| Wealth In Motion™: The movement of money creates wealth, not the stagnation of money left with various financial institutions. |
Protection:
| Cheap Insurance vs. Reasonable Insurance: There are no good deals in insurance; You typically get what you pay for. If two policies differ materially in price it is very likely that the terms are different, make sure if you transfer risk to a 3rd party that the 3rd party will be around to pay the claim. |
Economic Life Value vs. Needs Approach: Here are a few questions to help you think about what your Economic Life Value is to your family
Our experience has led us to the conclusion that in the event of a premature death families would be better off with more than just enough to “maintain” today’s standard of living. We believe in ensuring the value we provide to our family is replaced and our family’s goals can still be accomplished. |
| Economic Life Value Calculator: http://www.72t.net/Calculators/HumanLifeValue.aspx |
Replacement Cost vs. Depreciated Cost: |
Growing:
| Costs Matter! A low cost core portfolio is crucial to long term performance. Every investment has an associated “cost” built into it. This includes the “no load” funds that often infer that you are not paying management fees. Effective management of these costs can potentially have significant effects on a portfolio. There are many more costs than just the expense ratio. We make sure you know what you are paying, and always search for value when evaluating cost. |
| Risk: Most investors take on too much unnecessary risk; protecting the down turns of a portfolio is critical to long term success. How much does your account have to go up to make up for a 50% decline? That’s right, it has to increase 100% (double) just to get you back to even. |
| Plan: Investors often fail because they fail to plan. The number one determining factor on your future success as an investor is establishing a goal. Number two is establishing a strategy to reach those goals. Number three is not changing that strategy based on the constantly changing “noise” occurring in the market, which is best left to the “short-term trader. |
| Core: Exchange Traded Funds are often a superior structured investment when compared to mutual funds. ETFs are more tax efficient and typically have lower cost. We believe they make a better core investment than either index mutual funds or actively managed funds. |
| Core/Satellite Approach: A low-cost diversified core portfolio coupled with potentially higher returning (often less liquid) satellite investments can potentially add return and reduce risk in a portfolio. |
| Tactical Management: We recognize that market conditions are ever changing, and that the approach that was effective last year, may not be effective today. We believe investors should add to areas of underperformance rather than run to areas that have experienced high returns. |
| Tax Sensitivity: Our strategies take Uncle Sam into consideration. We strive to defer, minimize, and eliminate tax where possible while still maintaining the integrity of the portfolio. Taxes can never be avoided entirely, but an effective tax strategy can significantly increase long term returns. |
| Alternative Investments: Strategy Specific Hedge Funds, Master Limited Partnerships, Private Equity, Merger/Arbitrage, Currency, Commodities, etc. are all examples of potential Alternative Assets to Stocks, Bonds & Real Estate that can potentially help reduce portfolio swings and add alpha (risk adjusted returns). We believe it is crucial to utilize some of these asset types when the market conditions warrant it. The extra return potential may outweigh the additional risk. |
| Diversification: Prudent risk management dictates that you do not put all your eggs in one basket. Proper worldwide diversification can aid in lowering risk and increasing overall portfolio returns. |
| Asset Allocation: We believe that much of an investor’s return will stem from the type of asset selected (i.e. asset class) more than which investment manager they chose within the asset class. |
| Mean Reversion: Investments often trend toward their mean. We try to buy or sell asset classes when the market fundamentals are pushed to extremes and cause an investment class to deviate from its mean. |
| Protection: It is important to not only protect the downside of a portfolio, but also to protect everything that goes into making it a successful plan. We can accept minor risks but must transfer the catastrophic risk. Plans must work under all scenarios (i.e. live to age 120, die tomorrow, or become disabled). A plan based solely on hope is no plan at all. |
| Actively Managed Mutual Funds Tend to Underperform in the Long Run: Many of the investment strategies commonly promoted are less efficient than they could be. For instance, actively managed mutual funds typically underperform their benchmarks by their expense ratio. This often occurs because mutual funds are forced to hold cash (for redemptions) and are often forced to buy and sell at inopportune times as money flows in/out. |
Active money management vs. Passive money management: An explanation of why most active mutual fund managers typically end up with below index like returns: We believe that there are a few money managers (10%-20%) that are truly gifted and probably have the knowledge and strategy to beat their respective index for a period of time (10-20% of the managers can often outperform a comparable benchmark for period of time less than 10 years). A successful mutual fund manager sows the seeds of its own destruction rooted in their success and triumph. Jonathan Berk, a professor at the University of California, Berkeley, has the following explanation and thought process on why active management will usually fail as success and notoriety spreads. "Who gets money to manage? Well, since investors know who the skilled managers are, money will flow to the best manager first. Eventually, this manager will receive so much money that it will impact his ability to generate superior returns and his expected return will be driven down to the second-best manager's expected return. At that point investors will be indifferent to investing with either manager and so funds will flow to both managers until their expected returns are driven down to the third-best manager. This process will continue until the expected return of investing with any manager is the benchmark expected return - the return investors can expect to receive by investing in a passive strategy of similar riskiness. At that point, investors are indifferent between investing with active managers or just indexing and an equilibrium is achieved." |
