Moving into our house, we knew we needed to build a perimeter fence around our property. It would be one of the most important pieces of our dream: our guide for the farm, a way to mark the perimeter of our land.
We did so much research before we even started—well, okay, Ryan did the research. He’s a problem solver by nature and an engineer, so he gets things done. I’m the dreamer and visionary; he implements and figures it out. We picked the fencing material based on what we wanted to keep in our property. These include our goats, sheep, guardian dogs, and eventually mini horses and donkeys as well. We even went further to think about how the next owners might use the property, ensuring it’s set up for cattle and large horses. We also had to consider what we wanted to keep out of our property, namely, the neighbors’ dogs and coyotes.
The fence, now nearly done, has been a monumental undertaking, but it’s been essential in establishing our boundaries, priorities, and capabilities. It defines and establishes what decisions we make for the future of our farm.
In much the same way, investing is the most successful when it has a philosophy to guide and shape it.
What is an investment philosophy?
An investment philosophy, by definition, is a set of beliefs and principles that guide an investor’s decision-making process. It is not a narrow set of rules or laws, but more a set of guidelines and strategies that take into account the client’s goals, risk tolerance, time horizon, and expectations.
The investment philosophy is the infrastructure that holds and guides how investments are set up for each client. Like with the fence, there are some things that need to be decided and figured out prior to setting up the investments within an account—the risk tolerance, the time horizon, and why you’re investing, for example.
Within Mosaic, we’ve created the infrastructure to provide clients with efficient and effective ways to open and invest within our investment philosophy.
The Mosaic investment philosophy
At Mosaic, our investment philosophy relies on diversification and the discipline to maintain that diversification. We diversify to decrease the risk within portfolios. Think of the saying, “Don’t put all your eggs in one basket.” We add investments that react differently to changes in the market. When there is a downturn in the market, the uncertainty is hard. Discipline reminds us to look at why we are invested and stay the course—even when we want to take our money and run.
Our portfolios are broadly diversified within and across asset classes. Our stock allocation is spread out over large and small stocks, growth and value stocks, US and international stocks. We rely on the bond portion of our portfolios for stability, so the bonds are relatively high in quality and shorter in maturity.
Taxable accounts need to be handled with a little more attention. We use index-based Exchanged Traded Funds (ETFs), instead of mutual funds, because it is rare for them to pay out a capital gain. We also generally only use three funds to minimize the trades, and thus the realized capital gains taxes associated with rebalancing. The two stocks funds we use contain over 10,000 individual stocks; and it’s more tax efficient to have most of the rebalancing occur within the ETFs, where the taxes are deferred instead of on the outside where taxes are realized.
How Mosaic implements our investment philosophy
You may now be saying: this is all good in theory but how does Mosaic actually invest our clients’ money?
- We use Schwab Institutional Intelligent Portfolios. This is a digital platform clients use to set up accounts.
- Clients go through a risk questionnaire that helps define their asset allocation. Remember risk tolerance, time horizon, and why you are investing.
- Mosaic talks through each new client’s unique financial situation before an account is opened.
- We use DFA (Dimensional Fund Advisors) ETFs. They are low-cost and broadly diversified funds.
We’re intentional about a defined investment philosophy at Mosaic because it establishes a set of guidelines that gives some guided direction. Advisors and clients both adhere to the same approach, using the philosophy to help to stay the course when all the distractions come flying at us. It gives us not just the why we do something but also lets us navigate quickly to how we get it done.
I encourage you to think about what philosophies guide you in your everyday life, specifically in your financial approach. If Mosaic’s philosophy aligns closely with your own, I’d love to have coffee and talk more about how it can help guide your own dreams for the future.
The opinions expressed herein are those of Anna Nelson and are subject to change without notice. This material is not financial advice or an offer to sell any product. Forward-looking statements cannot be guaranteed. This document may contain certain information that constitutes “forward-looking statements” which can be identified by the use of forward-looking terminology such as “may,” “expect,” “will,” “hope,” “forecast,” “intend,” “target,” “believe,” and/or comparable terminology. No assurance, representation, or warranty is made by any person that any of Anna Nelson assumptions, expectations, objectives, and/or goals will be achieved. Nothing contained in this document may be relied upon as a guarantee, promise, assurance, or representation as to the future. Anna Nelson is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training.