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Passive Investing
Passive asset class investing, simply stated, is the systematic allocation of investment dollars into a globally diversified portfolio of stocks and bonds. We ensure that our clients' investment portfolios are well diversified by using the institutional mutual funds of Dimensional Fund Advisors which contain in separate funds:
- large company stocks and small company stocks
- growth stocks and value stocks
- U.S. and international stocks, and
- bonds with short to intermediate term maturities
The "passive" approach is perhaps best defined by what it is not: stock picking and market timing, which are costly efforts put forth by active managers (stock brokers and separate account managers) in their attempt to beat a market benchmark or index. Index Funds (e.g., an S&P 500 fund) are passive investments. But passive asset class investing goes beyond index funds to include pure asset class funds that capture the distinct investment returns and characteristics of stocks of different company size, style (value vs. growth) and geographic markets (domestic and international).
We believe that asset class mutual funds provide the investor an opportunity to attain the premium investment returns of the world's capital markets with manageable risk and at a lesser cost. This investment approach is not designed to hit financial "home runs"; rather it enables our clients to reach their life goals in a sound and realistic manner.
Most Wall Street media attention is focused on active management activities that have little impact on the returns investors receive. Academic research has shown that stock picking and market timing affect investment returns by less than ten percent while asset class allocation influences well over 90% of investment returns. Rather than spend our energy on issues which contribute little to our clients' returns, we focus on the "90% question."
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