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Investment Strategy

Foundations of InvestingInvesting Strategy

Wellspring Financial Partners’ strategy for investing rests on four pillars:

  • Invest with your plan in mind.
  • Get your allocation right.
  • Use best-of-breed, intelligently passive investments.
  • Be an informed investor.

Invest with your plan in mind

Investments are not made for the sake of investing, nor always made to get the highest possible returns. Investing needs to be executed with a goal in mind and with risks managed appropriately. Only with a plan developed jointly — with you at the center — can we invest for you and seek to meet the plan, while balancing risks and returns.

While many believe the best investments are the path to investment success, it is now accepted that while you need solid investments, a comprehensive and regularly monitored plan is more important. Understanding the timing of financial events, saving when you need to, and knowing when you will spend your hard-earned dollars, all combine to assure you have the resources available when you need them. Understanding the timing and risks are key ingredients to investing with the right amount of risk and return.

Get your allocation right

In a widely published and seminal study by Brinson, Beebower, & Hood (Financial Analysts Journal, May/June 1986) it was determined that fully 91% to 98% of portfolio returns are due to the institutional asset class allocations selected. Therefore, our investment strategy centers on the portfolio allocation for our clients and modification of that allocation as time and circumstances dictate. The end result of this approach is an attractive and disciplined sell high/buy low implementation. The impact of emotional and psychological decisions is minimized and controlled so solid investment discussions may occur.

Best-of-breed investments

Wellspring takes a deeply passive (but not strictly ‘indexed’) investment approach to portfolio structure. Our strategic partner is Dimensional Fund Advisors (DFA) who pioneered passive investing using the information embedded in market prices combined with fundamental data to systematically identify differences in expected returns among securities. DFA has continually demonstrated their exceptional prowess at managing their specialized funds, maximizing potential returns and minimizing expenses.

(Individuals cannot invest in the funds utilized by Wellspring on their own. They are generally restricted to large investors and large corporate pension plans for such companies as AT&T and Boeing. This helps keep the funds performing well without driving up the costs in the funds with undisciplined small investors.)

Our selection of DFA for our investment strategies is based on a deep understanding of the following principals after decades of research:

  • Passive investing wins: The high cost of administering an actively managed fund can cost you 10-30%[1] of its possible return. If you have a taxable account, it’s almost impossible to win[2]. The last group of credible researchers who looked at this subject concluded that your chance of finding a true outperforming fund was 160:1[3], and even then they could not rule out the impact of luck on that singular choice.
  • Diversification is key to risk management: Our investing strategies are designed to protect against “all-your-eggs-in-one-basket” risks. The investment array we bring to the table will put you in 30 to 38 distinct institutional asset classes, instantaneously diversifying you across thousands of companies around the globe.
  • The most reliable way to increase returns is to lower costs: There are many elements involved in the cost of investing. These include trading costs, taxes, and management fees, to name a few. In some managed funds, these costs can exceed 1/3 of your returns. Consider this carefully: whether the fund goes up, or down, the fund will always take 1/3 of the returns away from the investor. Dimensional Funds works very hard to intelligently minimize tax costs, trading costs, and management costs to deliver some of the lowest fund management costs in the industry, returning more of the earnings back to the investor.

Be an informed investor

“We have met the enemy, and it is us.”[4] Time and time again, the average investor receives less than 50% of the returns from the investments they own. Wellspring’s job is to transform our clients into great investors and stop them from hurting themselves[5]

Perhaps the most valuable tools we can offer are discipline and knowledge — discipline to stay the course when the market is scary, and knowledge to understand how the world of financial investments works.


[1] Dimensional Fund Advisors, “The Science of Investing,” 2011.  See <link to Document which will be posted in “References” page>

 [2]Quote from Jonathan Clements in the Wall Street Journal (December 22, 1998), “If index funds looked great before taxes, their performance is almost unbeatable after tax, thanks to their low turnover and thus slow realization of capital gains.”

[3] Barras, Laurent and Wermers, Russ and Scaillet, O. – “False Discoveries in Mutual Fund Performance – Measuring Luck in Estimated Alphas,” Journal of Finance, February 2010.

[4]Quote by Walt Kelly’s comic strip character, Pogo, and first used in a poster for Earth Day in 1970.

[5] Swedroe, Larry E, “What Wall Street Doesn’t Want You To Know,” (2001, page 145).