The market
Stocks have historically earned more than bonds and cash over long periods, as compensation for their higher risk. Your plan sets how much of that risk you take.
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Investment philosophy
The portfolio follows the plan. Not the other way around.
We start with your goals and what it takes to reach them. Then we build a low-cost, globally diversified portfolio, built primarily with Avantis ETFs and grounded in decades of academic research rather than forecasts.
What we believe
Markets work. Use them, don’t fight them.
- Plan first, portfolio second
- Low cost, global diversification
- Systematic, not stock picking
- A steady hand in every market
Prices carry information. Every day, millions of buyers and sellers set prices that reflect what they collectively know. Trying to outguess them, by picking stocks or timing the market, is costly and, in our view, unreliable. Most professional managers who try don’t beat their benchmarks over long periods.
So we build from the market down. Your portfolio starts with broad ownership of thousands of companies around the world. No single stock, sector or country decides your outcome.
Then we tilt with intent. Academic research has associated smaller companies, lower-priced companies and more profitable companies with higher average returns over long periods. We lean portfolios toward those characteristics, systematically and at low cost.
And we control what we can. We can’t control markets. We can control costs, diversification, taxes and our own behavior. That’s where we spend our effort.
The evidence
What research says drives expected returns.
Decades of academic work, including the Fama–French five-factor research, point to a small number of dimensions that explain most of the differences in returns among diversified portfolios.
01
02
Company size
Smaller companies have, on average, earned higher returns than larger ones over long periods, with more ups and downs along the way.
03
Relative price
Companies priced low relative to their book value (value stocks) have, on average, earned more than high-priced growth stocks over long periods.
04
Profitability
Among companies at similar prices, more profitable companies have, on average, earned higher returns than less profitable ones.
These are long-term historical averages, not predictions. Each has had long stretches of underperformance, and there is no guarantee any will be rewarded in the future. Read the five-factor research (PDF).
Our building blocks
Why we build with Avantis ETFs.
Avantis Investors is part of American Century Investments. Its funds put the same research into practice, and they form the core of most portfolios we manage.
- The same evidence, applied daily. Avantis uses current market prices and company financials, including profitability, to decide which securities to hold and how much. That is the research described above, implemented systematically.
- Broad diversification. Each fund holds hundreds or thousands of companies across the U.S., developed international and emerging markets, with fixed-income funds for the bond side of a portfolio.
- Systematic, not stock picking. There is no star manager making forecasts. Tilts are rules-based and adjusted as prices change, with trading designed to keep costs down.
- Low cost and transparent. Low expense ratios, and holdings published daily.
- Tax-conscious. Because of how ETFs handle redemptions, they often distribute fewer capital gains than mutual funds, which matters in taxable accounts. They can still distribute gains, and results vary by fund and year.
How we use them
Avantis ETFs typically make up the core of a client’s stock and bond allocation. We may also use other low-cost funds where they fit a plan better, for example in a 401(k) with a limited menu, or to hold an existing position while we manage its taxes.
Avantis Investors is part of American Century Investments. Perfetta Capital is not affiliated with Avantis or American Century and receives no compensation from them for using their funds. ETFs carry management fees and other expenses and are subject to market risk, including possible loss of principal. Read a fund’s prospectus before investing.
Portfolio construction
How we build your portfolio.
Four steps, the same for every client, adjusted to your plan.
- From your plan
Set the mix
The balance of stocks and bonds comes from when you need the money, how much, and how much decline you can live with.
- Around the world
Diversify
U.S., international and emerging-market stocks, and high-quality bonds, so no single market decides your outcome.
- Account by account
Place for taxes
We decide which investments belong in taxable, tax-deferred and Roth accounts, and manage gains when we make changes.
- Ongoing
Monitor & rebalance
We review every portfolio against its target and rebalance when it drifts, or when your plan changes.
Your accounts are held in your name at an independent custodian, Altruist or Charles Schwab, and you can see every holding at any time.
Principles
What every investor should know.
Eight ideas we return to with every client.
01
Markets are hard to outguess
Prices already reflect what millions of buyers and sellers know. Finding securities that are priced wrongly is difficult for anyone, including professional fund managers, and most funds that try do not last or do not beat their benchmarks over long periods.
02
Past performance is a weak guide
Choosing a fund because it did well recently is not a strategy. Funds that lead over one stretch usually do not lead in the next, so we do not build portfolios on last year’s winners.
03
Diversify across the world
No one can reliably predict which market will lead next year. Holding many markets means a strong year in one place can offset a weak year in another.
04
Keep costs low
Costs are one of the few things an investor controls. We favor low-cost, broadly diversified funds so that more of a portfolio’s return stays with you.
05
Ignore the noise
Daily headlines and hot tips are built to hold attention, not to improve decisions. Consider the source, and separate news from entertainment.
06
Do not try to time the market
Research has found no reliable way to move out of markets before declines and back in before recoveries. Missing even a few of the strongest days can significantly reduce long-run results, and no one knows in advance when they will come.
07
There is rarely a perfect moment
Markets reach new highs often. Research suggests that, on average, investing at a record high has not produced meaningfully different results than investing after a decline. A plan you can stay with matters more than a perfect entry point.
08
Discipline is easier with help
Staying invested through a downturn is simple to say and hard to do. Part of our job is to keep you focused on the plan when emotions pull the other way.
Investing involves risk, including possible loss of principal. Past performance is no guarantee of future results. Diversification does not ensure a profit or protect against loss. Indices are not available for direct investment.
Go deeper
The research behind the approach.
Papers and guides from our client library.
Next step
Want a second opinion on your portfolio?
Bring your statements to an intro call. We’ll talk through how your money is invested today, what it costs, and how we would approach it.