Direct Instruments v. Mutual Funds

We invest primarily in direct instruments (stocks, bonds, muni's, Treasury securities) when we are comfortable that the size of a client's portfolio will permit adequate diversification investing across several industries.

To complete the asset allocation across various asset classes, we select no load, low cost index mutual funds and exchange traded funds for domestic small and midcap, and for international exposure.

In smaller accounts where the dollar values prohibit adequate spreading across ten or more industries, we build a portfolio using no-load mutual funds and passive index funds.

There is no doubt that investing in direct instruments yields greater control over the effect of income taxes. Further, we have found that many mutual funds under perform the market when you factor in high management costs (in loaded mutual funds), high turnover ratios (investments sold inside the mutual fund with no correlation to your individual needs) causing tax liabilities at unfavorable rates (rather than long term capital gains rates). Add to that the fact that mutual funds must keep excess cash in reserve in order to allow investors to cash out at any time (translation: the mutual fund is never fully invested).

For clients whose previous investment experience or personal comfort level dictates, we provide an alternative passive investment style, utilizing index funds, and exchange traded funds which mirror the market in general. We agree that achieving the highest potential return should not be a primary goal. Rather, structuring a portfolio that allows a client to meet their financial targets, to keep up with or beat inflation, and to sleep soundly at night without worrying about the value of their portfolio truly makes a success story.