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Investment Philosophy

Our investment philosophy is the implementation of the Yale Endowment portfolio model, which is an application of Modern Portfolio Theory. This model was developed by David F. Swensen who is the Chief Investment Officer at Yale University and manages the university’s nearly $20 billion endowment. This model has produced annualized returns of nearly 14% for the past 20 years. 

Central to the Yale Endowment Model is broad diversification with an emphasis on equity and alternative investments.  The image below shows the asset allocations that the model has employed since 1985.

T.M. Wealth Management’s investment process and strategy embraces the Endowment Model, which is characterized by a focus on asset allocation as the primary driver of return, a value orientation, an appreciation for the liquidity premium, and an opportunistic approach to assessing the role of investments within a portfolio.

Our investment philosophy comes from experience and studying the investment programs of some of the top university endowments in the country. We believe that investors should benefit from access to the same sophisticated investment approach and talent as the largest university endowment programs. The central tenets of our investment philosophy are:

  • Diversification of the portfolio, by asset class and within each asset class, can increase return and minimize risk through the reduction of portfolio volatility.
  • The integration of non-traditional asset structures, or alternative investments, into a traditional portfolio can reduce downside risk and reduce correlation to the broader market.
  • Although generally efficient, markets contain pockets of inefficiency that can be exploited through active management and tactical asset allocation.

While investment objectives and tax considerations vary among our clients, they share common characteristics. Many of our clients have a primary goal of the preservation of their capital which is followed closely with an objective of gaining prudent growth. Other clients may require some level of current income along with consistent long term capital appreciation. These are the same goals as large endowments.

Asset allocation, which is driven by complex mathematical models, should not be confused with the much simpler concept of diversification. While both diversification and asset allocation may help reduce volatility and risk, they do not guarantee future performance.

Investing in alternative investments may not be suitable for all investors and involve special risks such as risks associated with leveraging the investment potential adverse market forces, regulatory changes and potential illiquidity. 

Investing involves risks and no strategy or product can assure success or protect against loss.