Investment Style


From the Chief Investment Officer:

As the engine that powers a financial plan, a well-researched and carefully thought out investment strategy is a crucial component of your financial life. I have studied many approaches to investing and am convinced there is not a blanket strategy that fits all situations or even all parts of a portfolio. At a very high level, investment strategies often fall into a few basic categories based on certain priorities and theories.

Cost-Focused: The best example of cost-focused investing is index funds, which eliminate the costs of an active portfolio manager. The theory is that, with all other factors being equal, a low-cost investment will outperform a higher-cost investment. Therefore, investment cost minimization tends to take priority above all else.

Asset Allocation: Several academic studies point to the fact that asset allocation, or the types of investments in a portfolio, is the largest contributor to overall investment performance. The studies suggest that other attempts to increase performance, such as market timing, stock selection, and minimizing fees, have a relatively small impact compared to the asset allocation policy.

Buy and Hold: This approach is based on the belief that the market will always go up in the timeframe required. It is often characterized by phrases such as “time in the market is more important than timing the market.” Because buy-and-hold strategies rely on stocks rising over the long-term they tend to require little if any risk management. The problem I see with this approach is that “the long-term” does not have a clear definition and most financial goals have very specific timeframe requirements.

Goal-based Investing (our approach): In my view, most people invest for specific life goals such as retirement, “bucket list” travel, leaving a legacy, or any number of other specific purposes. Most investment strategies, however, tend to be focused on attempting to beat the market or maximize performance. In contrast, goal-based investing begins with identifying the investment performance required to meet specific financial goals over a defined timeframe, and then seeks to build an investment strategy that maximizes the chances of meeting or exceeding the performance target. With this approach, performance relative to “the market” takes a back seat to meeting specific performance goals with high probability. Although investment costs are carefully monitored, minimizing cost is not the end goal. Diversification through proper asset allocation is extremely important, along with risk management and a focus on minimizing losses.

We refer to our style of goal-based investing as a “Personal Endowment” approach, similar to the goal-focused style of large university endowments and other institutional portfolios such as pension funds. Institutional money managers focus more on hitting specific return targets with high probability, with steady returns over time taking a higher priority to a performance competition with the market. Endowment portfolios tend to be characterized by a variety of asset types that make money in different ways and under different conditions. I like to describe endowment-style diversification as having a portfolio of investments that DO different things.

The Effective Use Of Time

I believe what sets Veripax apart from many other investment firms is the effective use of time. Allocating capital (i.e. money) to an investment with the hope of increasing that capital requires time, and most investors understand that investing for long-term goals typically involves many years. Conventional portfolios often exclusively hold investments that are traded each day, effectively doling out the asset of time in daily increments. Veripax attempts to utilize the asset of time to either reduce risk or increase the chances of meeting a specific return goal, or both. This may involve utilizing assets that are not publicly-traded such as private partnerships, real estate, or custom-designed investments that involve a time component in exchange for risk-management characteristics.

General descriptions of goal-based investing and investments that incorporate a time element to reduce risk are included in the Veripax University section.

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