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  • Writer's pictureJeran Van Alfen, CFP®

A Win-Win Investment Philosophy

Updated: Sep 23, 2019

The Centered Financial Logo is an unfinished circle made from a single brush stroke. It was chosen because it has some symbolism in the way that we approach the financial planning process. With its roots in Zen, this type of circle represents strength, togetherness, and one-mindedness. Also, while the unfinished circle makes a good “C” for Centered, it represents that we are not finished with your financial journey. We still have work to do.

I share this with you, because this week I have felt a lot of personal gratitude for being able to do this type of work. Centered Financial is a young company, but I have felt such overwhelming support as we have gotten started and I am so excited about what we will continue to create. With this in mind, I would like to share a principle of the Centered Financial investment process that aligns our company with our clients' intentions.

A Focus on Cost and Efficiency

Portfolio construction is a key value that we provide to help you reach your financial goals. One of the simplest ways to increase returns is to lower costs. Many people are simply unaware of the money that is lost to expensive investment strategies, taxes, or inefficient portfolio management. Here is a basic explanation of the actions that we take at Centered Financial to provide a low-cost, efficient solution to our clients.

Choosing Effective Funds

The core of our investment portfolios is built using exchange-traded funds or ETFs. ETFs are a collective of securities like stocks or bonds that typically track an underlying index. One characteristic that we feel is advantageous in using ETFs is the passive nature of their composition. This style gives you as the investor some benefits:

  • The first is we know what we own in the portfolio. Since we are buying an index, we can choose markets and sectors with a specific purpose and understand what we are buying.

  • The second benefit is tax efficiency. Since most ETFs are not active in managing the underlying portfolio, there is a reduction in the tax costs that are passed on to investors.

Another characteristic that we feel is advantageous is that unlike mutual funds, ETFs are traded during market hours. This provides control on decisions of when to enter or exit our position. We can make intentional decisions based on current prices and take immediate actions when needed.

The last, and we feel most important, advantage of these types of securities is the lower internal cost. While both mutual funds and ETFs have seen a lower average cost in recent years, ETFs have a reputation of being cost efficient because of their passive nature.

Whether we use mutual funds or ETFs, we pay attention to two cost items:

  • The first is the expense ratio. The expense ratio is the internal cost of a fund. As the investor, you pay these expenses inside the fund and they are not reported on statements. While most active mutual funds have an expense ratio of close to 0.75%, we strive to keep our total weighted expense ratio in our portfolios under 0.15%

  • The second cost item is trading fees. Trading fees are assessed by our custodian whenever we buy or sell an investment. Trading fees have come down significantly in recent years and right now, we typically pay a flat fee of $4.95 for a trade. However, when it comes to choosing funds, we strive to utilize a list of No-Transaction Fee funds provided by the custodian. This means that we do not incur any trading fees when buying or selling these funds. Over time, this cost savings can be significant!

Investing with Purpose

In addition to our core funds, we also utilize strategies that provide intentional value adds.

  • Individual Stock portfolios: This is a satellite portfolio that typically makes up the large cap stock portion of an investor’s portfolio. Utilizing individual securities in addition to funds can provide targeted exposure to certain companies. This is typically used to provide control and transparency over income distributions and growth.

  • Collectively Conscious portfolios: These models are focused on investing in global sustainability. We select funds based on managers or factors that implement screens to target companies that consider current environmental science and definitions of sustainability.

Strength in Collaboration

Our financial planning and investment process rely on a collaborative relationship. I have tried to build our process so that it is about education and empowerment. You should always feel like you are a part of the process and like we are all in this together.

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