Our Guiding Principles
These principles of investing govern our fiduciary actions; they empower us to provide our clients with a superior caliber of service and support.
Below are the 10 most influential principles we incorporate into our investment philosophy. These same principles are used to manage risk and maximize return within your portfolio.
1. An investor's primary objective should be to maximize return, minimize risk and maintain portfolio longevity.
The mathematical or reported return of individual investments is less indicative of a portfolio's actual performance than many might believe. Rather, it is the investment methodology used to design, manage and maintain a portfolio that has the greatest impact on how well returns are maximized, risk is minimized and longevity is maintained.
2. Successful investors maintain a clearly defined investment policy.
An investment policy statement outlines and identifies your objectives, risk tolerance and time horizon. It should be referenced regularly to ensure your portfolio remains aligned with your long-term objectives and is not driven solely by short-term results.
3. While risk and return are related, increased risk may not always lead to greater return.
Many portfolios assume more risk than is necessary to achieve the desired/required return. Consequently, they may endure excessive exposure to the negative effects of inflation, security or asset class concentration, interest rates, currencies or other market hazards.
4. Asset class diversification is the single best means for reducing portfolio risk.
Asset classes respond differently to the influence of market factors. Owning thousands of investments across an ample range of asset classes decreases the likelihood of any single market event devastating your portfolio.
5. Asset classes with risk premiums provide greater return for assuming greater risk.
A risk premium is the incremental return that an asset class pays for the risk taken. Academic research has validated the risk premiums tied to stock vs. bonds, as well as small vs. large companies and value vs. growth stocks. Most recently, research has identified a risk premium associated with momentum, or upwardly trending, stocks. By strategically tilting a portfolio toward risk premium asset classes, returns can be optimized for a defined risk level.
6. Short-term, high quality bonds help to reduce portfolio risk.
Collectively, bonds are considered to be a relatively low-risk asset class; however, not all bonds carry the same level of risk. In general, the shorter a bond's timeframe is to maturity, the lower its risk. By managing bond risk levels, you free your portfolio to take on risk elsewhere in order to augment its overall performance.
7. Investing internationally helps to mitigate domestic risk.
Economic and political factors around the world are varied and fluctuate distinctly. Owning assets within multiple countries helps to minimize domestic risk (posed by economic and/or political factors) as these global assets are held in the denominational currency of the company's country of origin.
8. Investing in emerging markets can generate higher returns.
Emerging markets include the fastest growing economies in the world. These markets enhance return because they have a higher rate of growth as compared to developed markets. However, their added risk must often be balanced by lower risk investments in order to maintain portfolio alignment with your objectives.
9. Systematically rebalancing a portfolio reduces risk and may increase return.
Over time, your portfolio's investments will diverge from its optimized allocation. Rebalancing brings your portfolio back to its preferred allocation in order to maintain your desired risk exposure. Rebalancing also creates opportunities to sell high and buy low.
10. Portfolio costs and taxes impact returns.
When evaluating costs, remember that there are more factors to weigh than merely the transaction costs or management fees included within your account statement. There may be hidden costs associated with your investments including front-end or back-end loads as well as investment-level operational costs, management fees and transaction costs. For taxable accounts, tax cost will also impact a portfolio's total after-tax return.
Mercer Global Advisors Inc. is registered with the Securities and Exchange Commission and delivers all investment-related services. Mercer Advisors Inc. is the parent company of Mercer Global Advisors Inc. and is not involved with investment services. Forbes and Investment News rankings are for Mercer Global Advisors Inc.
