INVESTMENT PHILOSOPHY
At Blue Mountain Financial Planning, we adhere to an evidence-based approach to investing that is founded on academic and practitioner research. The following are pillars of our investment strategy:
- Investing is for the long-term. Over the long-term, a premium is expected for taking stock market risk. However, short-term investing can be more volatile and costly.
- The stock market cannot be timed. We know that the stock market will go up and down but no one can predict when. As the saying goes, “experts have predicted 10 of the last 2 recessions,” meaning that “experts” were wrong the other 8 times. Even with the most advanced technology and forecasting, no one has been able to accurately predict market movement in a repeated and consistent manner.
- It is better to stay in the market rather than jumping in and out. Some of the best days in the market have been during turbulent periods, but as mentioned above, we don’t know exactly when they’ll occur.
- We invest in passively managed stock mutual funds and ETFs. Actively managed funds have much higher costs and operate under the premise that they can outperform the index. Research has shown that most do not outperform their index over the long-term. Therefore, they don’t achieve high enough returns to make up the difference in higher costs.
- Portfolio costs matter and add up over the long-term! We evaluate expense ratios when choosing funds in our portfolios. We also take potential tax costs into consideration.
- Portfolio diversification is critical in managing and reducing risk. Exposure to domestic and foreign markets is necessary for true diversification. Maintaining a long-term asset allocation helps to achieve diversification. Lastly, mutual funds and ETFs provide diversification more efficiently and optimally compared to individual stock and bond holdings.
- We do not actively trade in accounts. We rebalance portfolios as needed according to their asset allocation. The purpose of active trading is to beat the market and this can’t be done successfully over long periods of time. Active trading can be extremely costly from a tax and/or trading cost perspective (selling and buying still includes a trading cost even when there aren’t trade fees).
Our view is that investing is more meaningful when centered on your financial plan and risk tolerance. The whole point of investing is so that you can achieve your goals and live the way you want.
