Core Investment Principles
At Cardiff Park Advisors we want our clients to be well informed, and to embrace the principles and strategy upon which our business—and their portfolios—are built. The centerpiece of this strategy is passively managed long-term buy and hold index fund and ETF investing.
Think of your investment strategy as a sophisticated GPS system. Many of us use GPS every day, but have only a cursory understanding of how it works. Now imagine you are sailing on a turbulent sea. As you navigate the storm it is essential to trust the system that guides you. In much the same way, the framework for investing that we present here will work if you consistently follow it through every kind of market weather. You need conviction that it works, and for that you need knowledge.
Here are some fundamental investment truths that inform our work at Cardiff Park Advisors, with links to learn more:
•Capital markets work to reward investors over the long-term. Stated simply, capital markets reward investors for taking risk. But many investors misperceive the relationship between risk and return. Some believe they can capture high returns with low volatility, that is, without taking much risk. This mythical perfect investment does not exist. There are no liquid investment alternatives with stable guaranteed principal that can provide real returns that consistently beat the combined impact of inflation and income taxes. Risk and reward are aligned. Learn more about the equity premium: link to “Risk-and-Return”
•Many people have misconceptions about investing. Some believe that the way to beat the market is through superior market-timing and security-selection skills. They have learned this from the active investment industry and financial media, both of which promote the idea that consistently beating the market is possible. Ironically, the sheer number of intelligent, skilled investment professionals engaging in security selection greatly reduces the likelihood of this happening. Investors who chase last year’s star fund advisor mistake luck for skill, and are likely to be caught in an endless, frustrating cycle as they move on to next year’s star. Cardiff Park’s passively-managed index investment approach is the opposite of this style of management. We do not practice active investment management and believe it works against an investor’s long-term success. Our approach is based on the idea that markets are efficient, that is, the price of a security reflects its intrinsic value. It stands to reason, then, that costs associated with active management will only result in below-average performance over time. Read more about how hard it is to beat the market here: “Efficient Market Theory”
•Investors who encounter periods of above-average or below-average security returns may inappropriately conclude that predictive trends can help them reap bigger gains. Placing market bets based on predictive trends is known as market timing. In truth, security prices move randomly, and often quite suddenly, based on unknown information relevant to the pricing of investments. Market timing is a dangerous game; you need to know both when to get out and when to get back in. Learn more about why market timing is risky and counterproductive: Link to “Market Timing”
•Asset allocation strategy (stocks/bonds; higher risk/lower risk) is the primary determinant of portfolio returns over time, and the cornerstone of long-term performance. Yet portfolio returns don’t always conform to expectations. If investors perceive that a strategy is not working, they may inappropriately reject a major investment asset class, such as bonds or stocks, even though that asset class plays an important role in a cohesive, risk-balanced strategy for realizing their financial goals. Learn more about asset allocation here: “Portfolio Design”
•In investment management, risk is often equated with the uncertainty of returns—that is, what is in the realm of possibility versus what is expected. Investors, however, often think of risk as the chance of financial loss, equating temporary negative returns with permanent capital losses. There are many different ways to characterize risk. It is only in the context of a relevant time horizon that we can determine whether volatility or inflation is the greater risk to an investment portfolio. Learn more about the various forms of risk here: “The Planning Problem” You’ve got several options.
•To diversify one’s investments is clearly common sense. If you put all your money in one basket you might win big, but you could also lose big. Alternatively, if you spread your money around so that you do not put all of your assets in shares of any one company, industry, asset class or country, those which produce more profits will offset those which produce less. Another way to think about diversification is to consider the lessons of modern portfolio theory and efficient markets, which teach us that there is no compensation for volatility that can easily be avoided. Learn more here: “Modern Portfolio Theory”
Each of the six statements above holds both a promise and a warning. Capital markets work, and proper asset allocation and diversification put capital markets to work for you. But without the proper guidance, conceptual knowledge and frame of reference, many investors fail to reach their objectives.
This website is dedicated to helping you understand the behavior of capital markets and all aspects of the investment management process. Realistic expectations establish the groundwork for developing realistic investment objectives. With the proper frame of reference, an informed investor can confidently adopt an appropriate asset allocation strategy and long-term investment plan.
To that end, we provide rich educational resources throughout our website. You don’t need to become a financial expert, but you will find it helpful (and reassuring) to understand the core principles of investing that we will follow together.
Bottom line: Our job is to help you understand the sources of risk and return, to create a well-diversified portfolio, and to demonstrate the powerful results of a buy-and-hold strategy. Your job is to learn, stay engaged, and trust your strategy.
Learn More About Us
Cardiff Park Advisors is located in San Marcos, 25 miles north of San Diego. We work with clients throughout the United States. We welcome the opportunity to discuss your financial goals and how we can help you reach them. You may reach us by emailing our principal at firstname.lastname@example.org or calling our office at 760-635-7526.
For more information about Cardiff Park Advisors please review our brochure at https://adviserinfo.sec.gov/firm/summary/126752 or visit www.cardiffpark.com