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Will You Create Portfolios that “Beat the Market”?

We don’t build portfolios that are designed to “beat the market”. In fact, industry wide research has shown that trying to beat the market is one of the primary causes of poor performance since this generally results in higher taxes and fees than a less active portfolio. Historically, 80%+ of pros fail to beat an average indexing strategy and individual investors perform even worse. The pursuit of “alpha” or market beating returns is in fact a highly destructive pursuit.

Our focus is not on building the best performing portfolios, but the most appropriate personalized portfolios. This means that we try to generate high risk adjusted returns within the parameters of someone’s personalized risk profile. Our research has found that the investor who reduces taxes and fees in a diversified portfolio while maintaining an asset allocation and plan that they can stick with through thick and thin, will on average outperform the investor who is consistently changing their plan in an attempt to “beat the market”.

Most importantly, “beating the market” is not a financial goal. Instead, most asset allocators should focus less on generating the highest return and more time on trying to achieve the appropriate return that will help them achieve their financial goals within the scope of their personal needs.