What’s Discussed

Whether you invest on your own or have a professional advisor, you may seek a straightforward framework for making investment choices. The following three principles are based on academic research, industry data, and the best interest of investors.

1. Prioritize the asset allocation decision. For your total portfolio, what asset classes do you own? Within equities, what is your exposure to regions, countries, and sectors? Within fixed income, what is the maturity, credit risk, and inflation exposure?
2. Manage Risk. Do you have holdings that are concentrated in a stock, industry, or country? Is your risk level appropriate for current conditions and your desired return?
3. Minimize cost. What are you paying for the mutual funds and alternatives you own? Will the performance of your investment managers cover their fees?

1. Prioritize the Asset Allocation Decision in Portfolio Construction

• Determine your goals and risk tolerance. Equities have higher historical performance than bonds and higher risk (see Chart 1). Reconsider your equity and bond allocations periodically, as the investment return advantage of equities over bonds varies.
• Diversify equities across sectors and countries to reduce the volatility of the equity allocation. Seek diversification as broad as a global equity index, such as the MSCI All Country World Index.
• Apply “factor” weights to your diversified equity portfolio. Certain factors have been demonstrated to outperform traditional cap-weighted indexes over long periods of time. Read more at Factor Investing for Equities.
• Rebalance regularly to stay on your allocation targets as conditions change.
• Buy high-quality bonds with duration and inflation protection suitable to current market conditions.
• Stay disciplined through market highs and lows. Long-term investment horizons have yielded positive results, given enough time.

Notes: Data are from Dimson-Marsh-Staunton (DMS) dataset for 1901–2022. Annualized nominal geometric returns are in dark green. The 5th and 95th percentiles are plotted below and above asset mixes. Bar length indicates the range of annual returns for each allocation; the longer the bar, the larger the variability. The numbers next to each bar represent the average nominal annual returns for that allocation.

Sources: Vanguard calculations, using DMS global returns data from Morningstar, Inc. (the DMS World Equity Index and the DMS World Bond Index, both in nominal and real terms).

The dataset includes returns from Australia, Austria, Belgium, Canada, China, Denmark, Finland, France, Germany, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Russia, South Africa, Spain, Sweden, Switzerland, the United Kingdom, and the United States.

2. Manage Risk

• Reduce concentrated holdings. Concentration reduces diversification and increases risk. Even relatively small increases in risk, if not accompanied by a sufficient increase in expected return, lead to surprisingly large decreases in the probability of long-term investment success.
• Apply a defensive overlay when systematic indicators show elevated probability of a large general decline in stock prices (see Chart 2 and Equity Downside Risk Dashboard).

Source: Atlas Capital Advisors. Chart illustrates hypothetical backtest; please see disclaimer at end.

3. Minimize Cost

• Seek the lowest implementation cost across the board. Any reduction in implementation costs has a high probability of improving future returns (see Chart 3).
• Avoid the high cost of active managers in liquid assets. The odds of any active manager consistently outperforming their benchmark are low. Just 18% of U.S.-based active equity mutual funds outperformed their benchmarks between 2004–2023.^[1]
• Avoid the high fees charged by the alternatives industry. The risk and return profile of private equity and venture capital can be replicated in liquid markets at lower cost.
• Seek the lowest-cost passive implementation of each asset category. Implement equity allocations with single stocks and ETFs.
• Optimize all allocation decisions for after-tax outcomes in taxable accounts.

Source: Dimensional Fund Advisors. Note: The sample includes funds at the beginning of the 10-, 15-, and 20-year periods ending December 31, 2021. Funds are sorted into quartiles within their category based on average expense ratio during the sample period. The chart shows the percentage of winner and loser funds by expense ratio quartile. Winners survived and outperformed their benchmark; losers did not.

Atlas Capital in Summary

Atlas Capital was founded by Jono Tunney in 2003 to provide a service encompassing these traits. To provide this service at low cost, Atlas developed its own implementation technology. We do not need to pay an intermediary to aid our implementation — this is unique.

In addition to investment management, Atlas provides long-term solutions to a variety of planning and investment circumstances. We are a fee-only fiduciary who always prioritizes the best interests of our clients. Please contact us to discuss your financial situation.

Do you know someone needing the services of a financial advisor? We appreciate referrals. Thank you for helping us continue to grow.

Please contact us.

[1] Dimensional Fund Advisors analysis.

Disclaimer

The information and opinions contained in this presentation are for background purposes only and do not purport to be full or complete. No reliance may be placed on the information or opinions contained herein. Atlas does not give any representation, warranty, or undertaking, or accept any liability, as to the accuracy or completeness of the information or opinions contained herein. This presentation does not constitute an offer or solicitation to any person in any jurisdiction. Recipients should not rely on this material in making any future investment decision.

Opinions expressed herein are subject to change without notice. Certain information contained herein (including any forward-looking statements and economic and market information) has been obtained from published sources and/or prepared by third parties and in certain cases has not been updated through the date hereof. While such sources are believed to be reliable, Atlas and its affiliates do not assume any responsibility for the accuracy or completeness of such information.

This document may include projections or forward-looking statements regarding future events, targets, or expectations. Due to various risks and uncertainties, actual events or results may differ materially. Past performance is no guarantee of future results. Investments are subject to risk, including possible loss of principal.

Investment advisory and management services are provided by Atlas Capital Advisors, Inc., registered as an investment advisor with the SEC.