Investments
A disciplined approach to managing your portfolio.
A focus on what matters
Our investment process is built on a simple belief:
That financial advisors should make investment decisions based on hard facts and nothing else (like what pays them the highest commission or fee).
Incontrovertible facts:
It is nearly impossible for investors in the public markets to outperform on a risk-adjusted, after-tax, after-fee basis over any meaningful period of time.
Clients of firms who believe they can "beat the market" end up paying extraordinarily high fees for portfolios that, on average, do significantly worse than the market.
The most sensible - and proven - investment strategy is to maintain an appropriate asset allocation that is sensitive to taxes and fees.
“When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients.”
— Warren Buffet
Our Investment Philosophy
Global, diversified, efficient. With a secret sauce.
Our investment philosophy is built on what we believe is the best available evidence as to how portfolios should be constructed and managed.
Premise #1
Market timing and stock picking ("active management") cannot consistently outperform the market.
Over any meaningful time period, more than 95% of professional “actively managed” funds underperform their relevant market.
As shown in Exhibit 1, active managers as a whole have failed miserably to deliver on their promise of superior results.
Percent of active funds underperforming benchmarks, after taxes and fees
percent of active funds underperforming benchmark, after taxes and fees
percent of active funds outperforming benchmark, after taxes and fees
Sources: S&P Dow Jones Indices LLC, CRSP. Data as of Dec. 31, 2022. Past performance is no guarantee of future results. Chart is provided for illustrative purposes.
Premise #2
The small percentage of active managers who do outperform over a given time period fail to do so consistently.
Understanding that most active investors underperform a relevant benchmark, the logical next question is “can the small subset of active investors who do outperform, outperform on a consistent basis?
As shown in Exhibit 2, if we define “top-performer” as the top quartile (25%) of all actively managed funds in a given year, we find it is exceedingly unlikely that a top performer will continue to be a top performer in subsequent years.
Percentage of actively managed funds remaining in top quartile
Sources: S&P Dow Jones Indices LLC, CRSP. Data as of Dec. 31, 2022. Past performance is no guarantee of future results. Chart is provided for illustrative purposes.
Conclusion
The most value maximizing approach to investing is to eschew "active management" and to embrace "index investing"
As shown in exhibit 3, index investors – defined as investors who attempt only to track the performance of specific market indexes, for example, the S&P 500 Index – have consistently outperformed active investors.
In addition to better gross performance results, index investing has the ability to be significantly more tax and cost efficient than active management.
Exhibit 3: Index investors have consistently outperformed active investors
Sources: S&P Dow Jones Indices LLC, CRSP. Data as of Dec. 31, 2022. Past performance is no guarantee of future results. Chart is provided for illustrative purposes.
Index Information: The S&P 500 is a market-cap-weighted index that includes 500 of the top companies in the US economy.
The S&P International 700 is a market cap-weighted-index index that includes 700 of the top companies in the non-US global economy.
Index Investing
The Wedmont approach to index investing
There is a wrong way and a right way to be an index investor.
Wrong way
Using a faulty heuristic to identify a target asset allocation (i.e., age based, etc.);
Building a portfolio without regard for asset location;
Building a portfolio and not conducting appropriate rebalancing;
Drawing from a portfolio in a pro-rata or other tax inefficient manner;
Failing to take advantage of tax loss harvesting opportunities.
Right way
Building an asset allocation based on the unique risk and return metrics demanded by your comprehensive financial plan;
Optimizing the portfolio for “asset location” by placing different asset classes in different account structures based on the tax implications;
Regularly rebalancing back to the target asset allocation;
Drawing from the portfolio in the most tax efficient sequence across various tax statused accounts;
Tax loss harvesting on a recurring basis (not at the end of the year) and, where appropriate, leveraging direct indexing to further minimize future capital gains taxes.
Our Secret Sauce
Direct indexing with no AUM fees
The next step in the evolution of index investing, direct indexing allows our clients to invest in a way that can be more tax-efficient and customizable than traditional index fund methods. Wedmont provides direct indexing to all clients at no incremental cost.
Overall S&P 500 Index Return
Percentage of stocks within the S&P 500 that increased in value in a given year
Percentage of stocks within the S&P 500 that decreased in value in a given year
Direct indexing uses individual securities to replicate a given index/benchmark, mirroring the performance of a comparable index fund. Given the natural volatility in stock prices, owning the individual securities allows for more granular tax loss harvesting than only tax loss harvesting at the fund level. The result is an index based portfolio that is more optimized for tax efficiency.
Use cases for direct indexing
Capital Gains Minimization
Investors in high tax brackets with expected capital gains tax exposure in the future.
Concentrated position management
Exit a large position in a way that mitigates the capital gains impact.
Transitioning an Existing Portfolio
Transitioning an expensive and/or tax-inefficient portfolio to an index based strategy without incurring unnecessary capital gains.
Greater Customization
Expressing ESG/SRI views by excluding certain stocks or industries from a portfolio.
Our process
An institutional approach to managing wealth for HNW clients.
Implementing your portfolio in a low cost and tax efficient manner.
Creating an asset allocation unique to you and the nuances of your financial plan.
Implementing your portfolio in low cost and tax efficient manner.
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Join us and experience the Wedmont difference
**This testimonial was provided by a current client. The client was not compensated, nor are there material conflicts of interest that would affect the given testimony. The testimony may not be representative of the experience of other current clients and does not provide a guarantee of future performance success or similar services.