Five chief principles that inform the IFA model are as follows:
1
Financial markets are efficient. As free market prices fully incorporate available information, price change consequently
reflects unexpected new information; therefore the current price is the best estimate of a fair price.
2
Risk and return are inseparable. Although there is no such thing as return without risk, not all risks are rewarded.
Long-term historical risk and return data informs IFA’s investment selection process, and IFA's Index Portfolios seek to capture the historical risk factors that
have appropriately compensated investors for risks taken, including market, size, value, and profitability for equity and term and default for fixed income.
3
Diversification is essential. Diversification within and among asset classes lets investors effectively capture the returns
offered by the financial markets, in accordance with their risk capacity.
4
Structure explains performance. The expected return of a diversified portfolio is determined by its exposure to the compensated
risk factors, therefore the high costs and risks of active management are unnecessary and potentially harmful to an investor's long-term outlook.
5
Advisor Advantage. There are distinct measurable benefits to enlisting the services of a passively-oriented advisor, including
disciplined rebalancing, tax loss harvesting, asset location, and glide path.