Investment Philosophy

Introduction

There are many different variables that affect an investment account, like risk, diversification, asset allocation, return, active management, passive management, and on and on. These should be important to your Wealth Advisor1 and who should have a position of where they stand on these and variables. This document is to help explain our approach to managing accounts.

Focus on Risk

You've probably seen a graph like the following graph. What stands out to you, rate of return or risk? The difference is subtle but very important. We say, "While I can mathematically calculate the 'Risk' of a portfolio, I can never know the risk of the portfolio."

In other words, a formula can create a "risk" value for a portfolio. But, the actual risk of the portfolio is based on what happens in the future. For successful, long-term investing, we believe it is very important to focus on risk

Diversification*

Hopefully, you have heard or read on diversification. This is a very simple concept – namely, "Don't put all your eggs in one basket."

Financial Chart

This chart is called the "Callan Periodic Table of Investments". It shows the actual return of different asset classes for a given calendar year. What is important are the colors. While trends exist (certain color boxes tend to stay in certain ranges) you see wild movements of the boxes. Also note the cyclical nature of the movement of the boxes.

We believe all portfolios need appropriate diversification.

Active Versus Passive Management

GraphicSome might be asking, "What's Active versus Passive?" while others of you have read about this and fall into the camp of Passive. Passive Management simply means that the manager buys and sells based on a specific benchmark or index2. The benchmark is the price for one share of all the assets in a specific asset class (The S&P 500 is an example). Active Management means there is a fund manager or team that decides what to buy/sell, how much and when with a goal of beating the benchmark's return. We believe there are pros and cons to both and do not base our recommendations on whether a manager follows an active or passive approach.

Monitor the Account

Clients care about whether or not their advisor is monitoring their account.

GraphicWeekly, we take a "30,000 foot level" view of every account. We are looking for abnormalities in the balances of the accounts. Once a month we do a "10,000 foot level" view of the account, considering the risk and return of each fund within the account and comparing it to other similar funds. Each quarter we delve at a low level on the account, looking more into the funds and whether we should recommend any modifications to the portfolio.

Be there for the Client

GraphicWe meet with our clients as often as they like, but not less than as least once a year. Generally, when an account is new, clients prefer to meet quarterly. After a comfort level is built, this is reduced to annually.

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1 Investment advisory services offered through Eagle Strategies LLC, a registered investment adviser

2 It is not possible to invest directly in an index.

* Diversification does not guarantee profit or protect against loss in declining markets

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