Investment Philosophy
- Managers do not beat the market — Much attention and effort is given to investment managers and their desire to “beat the market.” However, numerous studies have shown that a majority of investment managers fail to beat their respective benchmarks. The market, over time, almost always wins. Read More
- Invest to capture market returns — Since the market indexes outperform the stock pickers and the market timers over long time periods, we believe it is prudent to hold investments that simply track the index. Getting market returns is like playing golf and shooting par – only the best achieve it.
- Globally diversify — Since it is impossible to predict, with any degree of accuracy, what assets will perform well over a certain time period, Prium’s philosophy is based on globally diversifying across many different asset classes. Click here to discover why Prium diversifies its portfolios with ETFs.
- Invest in many asset classes — This extreme level of diversification serves to “smooth out” investment returns, greatly reducing the risk of the portfolio. This approach is referred to as “asset-class investing.”
- Reduce costs and risk — All of Prium’s portfolios include an extremely broad mix of assets, both domestic and international. This philosophy emphasizes long-term results, maximizing the return-risk tradeoff, and minimizing costs to the client.
- Build portfolios for the long term — Even though we believe it is incredibly difficult to consistently “beat the market”, we also recognize that different asset classes have very different risk and return characteristics. By scientifically combining these asset classes in different ways we can construct client portfolios with a large range of expected returns and target risk levels. In fact, some of our model portfolios actually have higher expected returns and lower risk than the S&P 500.
Benefits of Diversification Growth of $10,000 from 1970 to 2005
This graph shows the return from 1970 to 2005 on an initial investment of $10,000. The annual return was 10.9% with a standard deviation of 17.0% with the 10k invested in a large cap index such as the S&P 500. Small cap stocks were even more risky than large cap stocks. The return on small cap stocks was 15.4% with a standard deviation of 22.7%. However, one could add 20% small cap stocks to the large cap stock portfolio and achieve two key objectives. This transaction would increase the return to 12.1% and decrease the risk to 16.9%. This is an example of how diversification increases portfolio returns and decreases risk.
| Portfolio | Annual Return | Standard Deviation (Risk) |
|---|---|---|
| Large Cap Stocks | 10.93% | 17.01% |
| Small Cap Stocks | 15.44% | 22.72% |
| 80% Large/20% Small | 12.06% | 16.85% |
| Benefits of Diversification | Increased Return | Decreased Risk |
THE EFFICIENT INVESTOR
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