How Do We Choose the Funds We Use? Step Two: Identify the Best of the Best

Welcome back. In our last message to you, we introduced our five-part series on how we choose the funds we use—even in volatile markets like the kind we’ve been encountering lately. By first eliminating the speculative, or traditional active product providers, we weed out selections that simply do not align with the patient perspective we take for building or preserving durable wealth. This clears the playing field for Step Two.

Step Two: Identify the Best of the Best

After we eliminate the speculative product providers, we’re left with a much smaller, but still sizable pool of credible selections. This is a nice “problem” to have. But it means we must narrow the field further by identifying the best of the best. We also must periodically revisit our selections, as new or existing providers offer potential enhancements over time.

As your advisor, we believe we add considerable value through our upfront and ongoing due diligence. We aim for providers who offer a prudent balance between incorporating important innovations, without creating chaos. This involves identifying the most robust factors, or expected sources of return, and understanding how they interact with one another across various market conditions.

To build toward desirable investment outcomes, we favor fund managers who are:

Evidence-based: They harness the same, growing body of evidence we use to create a more reliable investment experience across the market’s “random walk.”

Persistent: They are deliberate, patient, and thrifty, with an eye toward offering more than just a menu of popular products and short-term “pops.”

Visionary: They’ve been around for a while, with a strong track record for capturing known and newly identified dimensions of expected returns.

Collaborative: They specialize in providing sensible, low-cost building blocks for creating and managing solid investment portfolios to facilitate investors’ greater financial goals.

Step Two takes us a long way toward helping you build a portfolio that’s ideal for your goals and risk tolerances, and structured to withstand the best and worst of times. In Step Three, we’ll focus in on the product packaging.