Our investment approach: the benefits of low-cost, exchange-traded index funds
A common question we get as advisors is, “What am I invested in?”. In this article, we will address our approach to investing. Our hope is to give you an understanding of how your accounts are invested and why we take that approach.
First, let’s start by defining a few terms.
Mar·ket In·dex: tracks the performance of a specific group of securities, such as stocks or bonds, within a given market or sector. An example of an index that is frequently referenced is The S&P 500, which tracks the 500 largest US publicly traded companies.
“Joe likes to check on how the market is performing. He often looks at the S&P 500 and Dow Jones market indices for his performance updates.”
Ex·change-Traded Funds (ETFs): combine features of both mutual funds and stocks. They allow investors to gain exposure to a diversified portfolio of assets, such as stocks, bonds, or commodities. ETFs are designed to track the performance of a specific index or benchmark, enabling investors to passively invest in a particular market or sector. They offer benefits such as cost efficiency, broad diversification, liquidity, transparency, and accessibility.
“Joe wanted to know if his current advisor was using mutual funds or exchange traded funds in his portfolio, so he asked Human Investing to review his account.”
Ex·pense Ra·tio: represents the annual operating expenses incurred by the fund, expressed as a percentage of the fund's total assets. It encompasses costs associated with fund management, administrative expenses, custodial fees, legal fees, and other operational expenses. A low expense ratio is generally considered favorable for investors because it means a smaller portion of their investment is consumed by fees.
"When looking for a financial advisor, Joe tried to assess which advisors utilized funds with a low expense ratio, so he could retain more of his return."
Now let’s answer the question: What am I invested in?
Our standard index portfolio strategy invests in low-cost exchange traded funds (ETFs). Our goal is for clients to have a well diversified, efficient investment portfolio with minimal expenses, to manage risk and increase potential returns.
Depending on your timeline and risk tolerance, we will determine the appropriate investment allocation for your account. Typically, the longer the timeline, the more aggressive one can be with their investments.
If you have additional questions about your investment portfolio, we’d love to connect. Contact your dedicated advisor or email the Client Experience team at access@humaninvesting.com.
