FiveExcellent as it turns out Investment Characteristics

We favor investments that are low cost, tax efficient, diversified, liquid, and simple. Interestingly, Many investors often run into trouble when they invest in things that do not have these five characteristics. Investments with these five characteristics have been over profitable time, but typically are not very exciting. There is generally not a “hot story that you need to act on asap!” associated.with them The financial services industry generally does not favor type of investments because they generate very littletheseprofit from them. In fact, We are in the business of helping to maximize the wealth of our clients, not the financial services industry. Keep in mind that this list of investment . is not comprehensivecharacteristics As you may know, Other factors to look for in investments might include attractive valuation, low correlation to your other holdings, a nice dividend yield or interest income, a tilt towards areas of the industry that have produced higher returns such as value stocks, an appropriate uncertainty level for you, etc.

Low Cost. We typically invest in low cost index based funds and exchange traded funds (ETF’s). Interestingly, The funds we invest in have an average expense ratio of only.30% per year. The typical actively traded equity mutual fund has an average expense ratio of 1% or more. With investment funds, the best predictor of ahead relative effectivenessratiois the expense on the fund; the lower the better. Hedge funds typically have annual expense ratios of 2% plus 20% of anyprofits earned. Some variable annuities and permanent life insurance “investments” can have annual expenses of 2% or more. By keeping a exit eye on the costs of our investments, we can save our clients significant amounts of currency each year and assist them achieve higher returns over time (all else being equal). With investment products, you’don t get better effectiveness with a higher cost goods, in fact you typically get worse effectiveness.

Tax Efficient. It’s worth noting that Our investments (index based funds and ETF’s) are extremely tax efficient and they allow the investor to have some control over the timing of the taxes. These types of funds have low turnover (trading activity), which is a common characteristic of tax efficient investments. We recommend avoiding mutual funds with high turnover due to their tax inefficiency. After the recent bigSincrease more than ever in the U. . stock niche, many active equity mutual funds have “imbedded” capital gains of as much as 30%-45 as it turns out %. Actually, If you obtain those mutual funds asap you may end up paying capital gains taxes on those imbedded gains even if you didn’t own the fund during the increase. In fact, ETF’s typically do not generate long and short-condition capital gain distributions at yearend, and they do not have imbedded capital gains like active mutual funds. Hedge funds are typically tax inefficient due to their very high turnover. In fact, In addition to investing in tax-efficient products we also do many other things to help keep our user taxes minimized such as tax loss harvesting, keeping our turnover/trading low, putting the right type of investments in the right type of accounts (tax location), using losses to offset capital gains, using holdings with large capital gains for gifting, investing in tax-no cost municipal bonds, etc.

Diversified more than ever . In fact, We like to invest in diversified funds of they reduce your stock specific threat, and the overall threat because your portfolio. Bad announcement released about one stock may cause it to drop 50%, which is horrible update if that stock is 20% of your whole portfolio, but will be barely noticed in a fund of 1,000 stock positions. We tend to favor funds that typically have at least a hundred holdings often several hundred holdingsandor more. These diversified funds give you broad representation of the whole asset class you are trying to get exposure to, while eliminating the stock specific threat. We are not likely to invest in the newest Solar Energy.Corporation Equity Fund with 10 stock positions, for instance We don’t believe in taking any risks (such as stock specific uncertainty) that you will not get paid for in higher expected return.

Liquid. We like investments that you can offer in one minute or onetoday if you decide do so, and those which you can sell at or very close to the prevailing niche price. With liquid investments you always (daily) know the exact priceand value of your investments. All of the investment funds we recommend meet this standard. Interestingly, We don’t like investments which you are locked into for years without the ability to get money return at all or without payingyourlarge exit fees. Examples of illiquid investments would be hedge funds, private equity funds, annuities, private firm stock, tiny publicly traded stocks, startup firm stock or debt, illiquid obscure bonds, structured products, some life insurance “investments,” private real estate partnerships, etc. We prefer investment funds that have been around for some time, are large in size, and have high average daily trading volumes.

If you don’t understand it, don’t invest in it. Examples variable complicated and non-transparent investments that we generally avoid are hedge funds, private equity funds, structured products, some life insurance “investment” products, of annuities, private company stock, startup corporation stock or loans, etc. We prefer investments that are uncomplicated, transparent, and uncomplicated to understand. “Make everything as uncomplicated as possible, but not simpler.” -Albert Einstein. Plain. It’s worth noting that Complicated investment products are designed in favor of the seller, not the buyer, and usually have high hidden fees. All of our investments are uncomplicated and transparent; we know exactly what we own.

We believe most investors should have the majority of their portfolio invested in things that have these five excellent characteristics. Interestingly, By doing so you will avoid plenty of mistakes, negative surprises, and risks along the way. In addition, be believe your after tax investment returns will likely we higher over long periods of time. Of course not every smart these good investment will have all of or characteristics. For example, income producing real estate property is illiquid (and often not diversified) but can be an excellent longmanagedagreement investment if purchased and - properly. Owning your own business is illiquid and not diversified but can be an excellent way to create wealth as well. It’s worth noting that We believe these five investment characteristics become even more important as you enter retirement, since at that point you may be more focused on reducing uncertainty and preserving your wealth than building it, and you may need the liquidity to spend and gift part of your wealth during retirement. These five excellent investment characteristics can be a good screening device for possible investments and good factors to think about when investing.