In order to provide you with exceptional service, it is important that we at HCFA understand who you are as a person, as a family member, or an entity and your perspective on things such as:
- What would you like to achieve with your wealth?
- What are your current income requirements? And what changes can you foresee in future years?
- How do you wish to provide for yourself, your family, your company now and in the future?
- What are your values and how do you plan on passing these to future generations?
Taking your answers into consideration, we can begin to formulate an effective investment strategy addressing your needs. We prepare our strategies utilizing the investment philosophy of Dimensional Fund Advisors.
Our philosophy is outlined further in our preferred Analytics of Investing Below.
Our Analytics of Investing
Asset Allocation – Portfolios will be allocated across many different asset classes which include US large, small and microcap companies, International large and small companies, emerging markets, real estate and commodities for the equity investments. Interest and dividend investments include government and corporate bonds, dividend paying equities, utilities, preferred stocks and master limited partnership energy investments. Your portfolio will be rebalanced from time to time. Smaller accounts by their nature have fewer investments but will have diversification.
Risk and Return – Over the long term, equities have a greater rate of return, but they carry more risk. Fixed income investments over the long term have a lower rate of return but carry more risk. Small companies and emerging markets over the long term have higher returns but carry greater risk. The asset classes do not necessarily go up or down in sync. This is known as correlation. Designing a portfolio using analytics allows us to get a greater return using many different asset classes or diversification, with about the same amount of risk as a US only portfolio.
Taxes and Investments – Taxes and investments are related like a right and left glove. In taxable accounts, there are purchases, sales, exchanges, dividends and interest. All have a related tax component. For retirement accounts there are contributions and distributions which have tax components. There are also tax consequences for retirement accounts transferred through death and divorce. The advantage we offer in our practice is investments are combined with tax planning.
Portfolio Design – Portfolios are designed around your individual plans for your money and your tolerance to risk. If you are 70+ and rely on your portfolios for part of your retirement income, then your needs and tolerance for risk are different than a person in his/her 20s with a 40-year horizon for their investments. Simply put, your portfolios are designed for your needs.
Fees at Fund Costs – Fees at fund are an important part of your investment returns. Mutual funds charge fees at fund. For example, we sorted the 1,658 large US funds in our Morningstar software at March 31, 2012. They were sorted on fees at fund, highest to lowest. The mid-point fee at fund 829 (1,658/2) was 1.11% per annum versus the DFA institutional investment we use for your portfolio for this asset class has an annual fee of .10% per annum.
Tax Cost – Taxes are the silent costs of investing because you don’t see them directly and don’t quantify them unless you analyze your tax returns. With your taxable accounts we would do “loss harvesting” to have capital losses offset capital gains thus minimizing the tax costs. When stocks, real estate or a business is old at a gain, we endeavor to have capital losses offset your gains. Further, capital gains dividends and qualified dividends are passed through to you. Tax losses can offset these gains as well.