Our Investment Strategy

As an investment firm in San Diego, we spend the better part of our time researching and focusing on how macroeconomic events and investor behavior impact long-term returns. In short, emotional investing, frequent reactive trading, and expensive account fees (e.g. commissions, leverage, etc.) are detrimental to portfolio returns. We have designed an investment strategy of best practices to help our clients avoid these pitfalls. The investment strategy focuses on our central principals: low-cost/passive management, risk management, and behavioral economics. We believe that investment portfolios should be constructed by using data and research as its framework, not by relying on investor consensus and personal hunches.

Instead of building "customized" portfolios for our clients (which we don't believe is feasible nor practical), our three strategies (below) were created by studying time-tested methodologies and by keeping a long-term horizon. This is of the greatest import. Staying invested during the long-term is the single biggest factor of portfolio success.

Bull Oak Stay Invested
Source: Putnam

Yet, many individual investors do not stay invested over the long-term. Market volatility, media reports, and short-term thinking drive most investors to sell, limiting returns. We help our clients mitigate these errors by implementing our Central Principals.

Central Principals

Low-Cost/Passive Management - Empirical evidence has shown that most active investors (those trying to outperform the market) underperform the market over time. Over the past 5 years, ending June 2017, 82.38% of those funds have underperformed the S&P 500 (Standard & Poor's).

Over the longer-term, 15 years, the figures get worse with 92.2% of funds underperforming. If these were Vegas odds, nobody would be playing this game. However, investors continue to play because they are simply unaware of the odds stacked against them.

We place the odds in our clients favor by simply refusing to play. As technology continues to advance and as information diffusion continues to accelerate, we believe that the sub-asset classes will continue to become more efficient, making active management more difficult. We save our clients the cost and headaches of active management and instead purchase inexpensive passive index funds for our clients. We select and continuously monitor the most appropriate representative fund for each of the major stock, bond, and alternative markets.

Risk Management - To help keep clients from making the grave mistake of selling during periods of high volatility, we created the Risk Contribution Method. This methodology helps remove the natural human instinct of buying high and selling low (where we should be buying low and holding on for the long-term). It will instead underweight asset classes of high risk and overweight those of low risk.

Behavioral Economics - We strive to instill positive behavioral heuristics within our clients. The goal is to stay invested during the long-term, whether the market is bullish or bearish. This is achieved by 1. implementing our Risk Contribution Method, 2. training our clients to keep a long-term view, and by 3. keeping an open line of communication with our clients. We aim to be as transparent and communicative as possible with our clients, which we believe produces success.

One of the biggest issues an investor faces is not know how much risk they can tolerate. Most have simply not had the opportunity to find this out, other than by living through a bear market. We have made available to our clients a 5-minute test to help find this out. We invite you to take the same test for free by clicking on the link below.

The Three Bull Oak Investment Strategies

Conservative

Moderate

Aggressive

As an investment firm in San Diego for individuals and families, we offer 3 investment strategies for our clients: Conservative, Moderate, and Aggressive. Dependent upon their time horizon and personal risk tolerance, we believe that most investors can be placed into one of the three strategies.

The firm's investment strategy was created by Ryan Hughes, UCLA finance professors, and top industry professionals. It was created while Ryan engaged in a graduate research project while studying quantitative finance at the UCLA Anderson School of Management. The goal was to build an investment strategy that combined empirically-proven strategies used by some of the most successful investors.
 

Tax Efficiency

An important component to our investment strategy is tax efficiency. Because we invest exclusively in passive ETFs, we are already have a leg up when compared to most other investment strategies (e.g. actively managed accounts and mutual funds). There is far less turnover (less capital gains) in ETFs and we can implement a more tax-advantaged process by determining which shares are to be sold when selling a position (we can choose a those with a higher basis). You can read more on this topic here.

Aside from the inherent tax-efficient nature of ETFs, we also help our clients lower their tax liability by choosing the most efficient place to allocate these assets/ETFs. For example, some assets have a higher tax tax liability (e.g. high yield bonds) vs. those that do not (e.g. tax-exempt bonds). Therefore, there should be preference as to where those assets should be held (Taxable Account vs. Traditional IRA/Pre-Tax vs Roth IRA/Post-Tax). We allocate our clients assets into each of the three account types (whenever possible) based on the tax efficiency of each asset class, thus driving overall tax savings.
 

Where Your Money Is Held

All of our client's assets are held at TD Ameritrade via brokerage accounts (IRA, Roth IRA, Trust, Jt Ten, etc.). We do not directly custody our client's assets. Your account(s) is held at a large, well-known firm where you will have 24/7 access to your account. Learn more about TD Ameritrade's client portal here.  
 
 

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