On Target Wealth Partners believe that over the long term, a disciplined and diversified investment approach based on efficacy of the capital markets and financial science will add greater value with higher reliability, confidence and less stress than a philosophy based on intuition and speculation.
But what exactly is the financial science?
Trying to summarize decades of academic research and real world practical application into a top-line, approachable summary is difficult, but financial science has yielded several critical principles important to investors:
Markets work and are generally very efficient
Diversification is key
Risk and return are related
Portfolio structure explains performance
It is clear that returns come from taking risk. Successful investing strategy seeks to capture risks that generate expected return and reduce risks that do not. Therefore, it is important to establish those risks that are worth taking. Financial science has completed this task by identifying the sources of investment returns.
There are five factors that help determine expected return:
Three Equity Factors
Two Fixed Income Factors
It is then necessary to apply these principles, learnings and science when evaluating an investing approach or philosophy.
The three main investing philosophies include:
Passive Index Management
Passive Asset Class Management (OTWP strategy of choice)
The implications are critical:
On Target Wealth Partners embraces financial science and performs portfolio engineering to target investment returns that are directly related to the desired level of risk taken. The result is true investing versus speculating.