The primary goal of financial advice is to determine the appropriate range of probable outcomes (standard deviation) for a clients' entire investment portfolio. IFA refers to this process of obtaining a client-specific standard deviation as risk capacity analysis. Once that is determined, that standard deviation value is matched to a portfolio of indexes that is supported by the highest quality historical data for the longest period of time available (preferably 50 years or more).* The portfolio of indexes should represent the lowest cost, most globally diversified, tax-efficient, and highest historical return portfolio, net of all fees, expenses and taxes. This is what IFA refers to as an efficient risk exposure.
An advisor should then buy, hold and rebalance a portfolio of index mutual funds (a risk exposure) that most closely represents the selected indexes. It should only be changed as a client's risk capacity changes. Market changes are not relevant to asset allocation decisions because nobody can consistently predict the next random bit of new information that will move a stock or an entire market. Once that information, which is some times wrong, is transmitted to millions of traders it is immediately reflected in the price of all relevant assets. This is the beauty of capitalism and a free market system where assets are always priced at a "fair market value" relecting the risk of the investment, the cost of capital for the equity holder, and the resulting expected return of the capital provider (your client).
This rapid reflection of news in asset prices leaves no opportunity for traders to consistently profit at the expense of all the other traders. These concepts are referred to as the random walk theory and the efficient market hypothesis.
The result of the investment strategy described above is an optimal portfolio and investment experience for each investor. IFA refers to this overall process as Capacity - Exposure Optimization (CEO) Investing. Current events analysis, stock picking, time picking, manager picking, and style picking are the equivalent of short-term speculation and have no place in a prudent investment strategy.
you understand and agree with the above statements, you are a candidate
for our network membership. If you don't, you
must be new to investing or have not done sufficient reading of academic
If you don't understand these principles of investing, then we have no
interest in working with you. Then again, you might not want to know or
admit to the facts that support those statements. As William Bernstein
stated in The Intelligent Asset Allocator, "There are two kinds of investors, be they large or small: those
who don't know where the market is headed, and those who don't know that
they don't know. Then again, there is a third type of investor - the investment
professional, who indeed knows that he or she doesn't know, but whose
livelihood depends upon appearing to know."
IFA neither endorses nor recommends Network Members individually or as
a group and does not endorse or recommend any particular Network Member’s
investment strategy. IFA recommends strongly that investors do due diligence
on any particular investment manager they consider hiring, regardless
whether that manager is IFA, any IFA Network Member, or any other advisor.
INDEX FUND ADVISORS, Inc.
If you are a Registered Investment Adviser that wishes to establish a relationship with Index Funds Advisors (IFA) as a Network Member or Solicitor please do the following.
Index Funds Advisors, Inc. — 19200 Von Karman Ave., Suite 150 — Irvine, CA 92612
Call Toll Free: 888-643-3133 — Local Phone: 949-502-0050 — Fax: 949-502-0048 — Email:
For several other offices and representative locations, see About Us.