We don’t have a slick sales pitch to defend our investment philosophy, because we don’t need one. A sound, sensible approach to investing must be based on logic, pure and simple.

Asset allocation drives investment results.
The importance of asset allocation has been discussed for decades. Asset allocation, not market timing or stock selection, is the most important determinate in long-term investment results. Studies show that approximately 90% of investors’ results can be explained by the asset allocation policy established by an investor. While some may argue whether this number is 70, 80, or over 90%, the conclusion is still clear: asset allocation is the primary driver of investment results. Why then do investors spend so much time trying to pick the best manager or security, rather than focusing on what really matters to their long-term results?

"Instead of concentrating on the central issue of creating sensible long-term asset-allocation targets, investors too frequently focus on the unproductive diversions of security selection and market timing."

—David F. Swenson

The future is not predictable.
Common sense says that nobody can predict the future. In the investment landscape, this goes for so-called Wall Street gurus, Nobel Prize winning economists, and investor luminaries. Research shows that forecasts by recognized “experts” are likely to be no better than random guesses. In fact, the more famous the expert, the less accurate his or her predictions tend to be.

"It's tough to make predictions, especially about the future."

—Yogi Berra

Even more notable for the individual investor is that evidence shows at least two-thirds of actively managed equity mutual funds underperform the market, and the one-third that do outperform changes from period to period. In the presence of taxes, even fewer managers outperform their benchmark. When active funds do outperform, not only is it on a pre-tax basis, but the incremental return above the benchmark is often only marginally higher. Those that fail to beat their benchmark, however, tend to underperform by a much wider margin. If most professional investors consistently underperform the market, why then do individual investors spend so much time – and money – trying to outperform?

Fees and taxes matter.
Minimizing cost is critical for long-term investment success. Studies have shown that cost is the single most highly correlated statistic with future investment success. If investors as a whole are the market, then in aggregate they must fall short of market returns after fees and taxes. Every dollar paid in fees and expenses is a dollar less of potential return. Fortunately, fees and taxes are among the components in which investors have the most control. If it’s not about what you make, but what you keep, then why are investors still overpaying to underperform the market?

"The intellectual foundation of indexing is based — not on some notion of 'efficient markets' — but on low costs, wide diversification, and tax efficiency."

—John Bogle