Philosophy

Our Belief – Use An Evidence-Based Approach:

Before starting any journey, a critical first step must be taken: deciding where to go.

Goals are just as important in financial planning as they are on a road trip. Most people want to retire, but when? Higher education costs have increased much faster than inflation, how should we plan to save? What happens if an unforeseen medical situation arises? Wouldn’t it be great to have a place at the beach to take the kids?

Goals are important – they’re the reason we invest! Once goals have been established, we can set about the work of meeting those goals. To do that, we follow the path of “evidence-based” or passive investing.Carl Richards Sketch - Your Goals or Beating the Market

Even a cursory glance into the academic research surrounding mutual fund performance reveals the most important fact about active managers: over the long term, most of them have failed to outperform their benchmark indices. From 2006-2011, over 60% of broad US equity managers under-performed their index. For small-cap, emerging market, and fixed income fund managers, the results were even worse.

Investors who have avoided chasing hot fund managers and instead placed their trust in the power of the broad market have been rewarded.

The Efficient Market Hypothesis, which is the basis for the body of academic work known as Modern Portfolio Theory, states that market prices are the truest possible representation of “fair” prices as agreed upon by a buyer and seller, both of whom act rationally based on the information that is available. In our increasingly interconnected world, information travels faster than ever before, and stock prices react to news in fractions of a second. Markets will always get better at pricing new information, which means that the costs of identifying mispriced securities will continue to rise.

Rather than spin our wheels trying to identify those “deals” that hundreds of thousands of equally intelligent investors have missed, we choose an evidence-based approach. Because risk and reward are related, we can make assumptions about return for specific asset classes based on observations and expectations of risk. By using index strategies across many asset classes, we hope to build an efficient portfolio that rewards patience.

So what do we do?

  • Diversify Globally – The typical investment portfolio under-invests in international companies, missing a diversification opportunity. We participate in markets across the world at all stages of development, gaining access to many different areas of risk and reward.
  • Tilt towards size and value – Smaller and more distressed companies are inherently riskier than larger and more stable companies. Thus, their expected return should be higher. By leveraging the return premium associated with size and value, we hope to increase returns while keeping risk within acceptable levels.
  • Keep costs down – The index strategies we employ generally demand lower expense ratios than active strategies, which puts a higher percentage of the overall return into investors’ pockets. We have access to institutional quality fixed income markets and a network of independent broker-dealers who compete on price, delivering quality fixed income offerings at competitive rates.
  • Minimize taxes – Paying taxes is a reality all investors face. By choosing appropriate tax efficient investments and tailoring our plans to each client’s specific tax situation, we aim to minimize that reality as much as possible. With over 25 years of tax experience, ARK is uniquely positioned to help navigate this rapidly changing environment.