Our Investment Philosophy

The basic philosophies that Pacesetter Financial Group follows for portfolio management include the following tenets:

  1. Modern Portfolio Theory, as recognized by the 1990 Nobel Prize, is the primary influence driving the way we structure portfolios and how subsequent decisions are made. The underlying concepts of Modern Portfolio Theory include:
    • Investors are risk-averse.  The only acceptable risk is that which is adequately compensated for by potential portfolio returns.
    • Markets are efficient.  It is virtually impossible to predict the next direction of the market as a whole, or of any individual security.  It is, therefore, unlikely that any portfolio will succeed in consistently “beating the market.”
    • The portfolio as a whole is more important than an individual security.  The appropriate allocation of capital among asset classes (stocks, bonds, cash, etc.) will have far more influence on long-term portfolio results than the selection of individual securities. Investing for the long-term (preferably longer than ten years) becomes critical to investment success because it allows the long-term characteristics of the asset classes to surface.
    • For every level of risk, an optimal combination of asset classes exists that will maximize returns.  We select a diverse set of asset classes to help minimize risk. The proportionality of the mix of asset classes will determine the long-term risk and return characteristics of the portfolio as a whole.
    • Diversification is key.  Portfolio risk can be decreased by increasing diversification of the portfolio and by lowering the correlation of market behavior among the asset classes selected. (Correlation is the statistical term for the extent to which two asset classes move together or in opposition of one another.)
  2. Investing globally helps to minimize overall portfolio risk due to the imperfect correlation between economies of the world. Investing globally has also been historically shown to enhance portfolio returns, although there is no guarantee that it will do so in the future.
  3. Equities offer the potential for higher long-term investment returns than cash or fixed income investments. Equities (stocks) are also more volatile in their performance. Investors seeking higher rates of return must increase the proportion of equities in their portfolio, while at the same time accepting greater variation of results (including declines in value).
  4. Picking individual securities and timing the market in an attempt to “beat the market” are highly unlikely to increase long-term investment returns. These activities can also significantly increase portfolio operating costs.  Such practices, therefore, are avoided.

The basic underlying approach we utilize to manage portfolios is to optimize the risk-return relationship appropriate to each investor’s needs and goals, using a globally diverse portfolio of a variety of asset classes, using mutual funds to “buy and hold” the selected securities, with periodic rebalancing of the portfolio.