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PFS Core Investment Solution

The Simplicity of the PFS Core Investment Solution

Retirees and pre-retirees get to a point where they may want to relinquish some control of their portfolios. Such "giving away" of personal responsibility for managing a family's portfolio means that the investor must find a money manager they can trust with a solution that works.

Many advisors recommend a simple investing solution that will allow their clients to get on with their lives. It is the same solution that the nation's largest pension plans (IBM, GE, Boeing and United Technologies) all are using -- indexing for a large part of the equity assets under management.

The simplest method of managing money is to create a core portfolio using U.S. Treasuries for the fixed income portion of the portfolio and two exchange traded index funds for the equities portion. For instance, history suggests that 70% in the Total Stock Market Exchange Traded Index Fund with over 3000 stocks and 30% in the Barclays Bank Foreign Exchange Traded Index Fund (EFA) would be the preferred allocation for the equity part of the core solution. This is the same solution recommended by David Swensen, the manager of the Yale Endowment, clearly outlined in his book "Fundamental Success: A Fundamental approach to Personal Investment."

In 1990, the Nobel Prize was awarded for the research that led to Modern Portfolio Theory. Professor Markowitz, Ph.D., University of Chicago, proved that a portfolio with less volatility will have a greater compounded rate of return. Professor Emeritus William F. Sharpe, of Stanford University, proved that a stock portfolio that included all the stocks in the market has the least volatility. These two academic discoveries led to a breakthrough in investment methodology in 1990, the Modern Portfolio Theory.

In 1975, John Bogle, Magna Cum Laude, Economics, Princeton University, created the first Index Fund, a basket of all the stocks in an investment category that represents the total U.S. Stock Market. Investing in the total U.S. Stock Market Index Fund and the Total Foreign Index Fund, Provides a portfolio with all the stocks, which in turn leads to less volatility and historically, a higher compounded rate of return over time (past performance is no guarantee of future returns).

Experts agree about using stock market index funds. Harvard Endowment Management CEO, Jack Meyers, says "Most people should simply have index funds so they can keep their fees low and their taxes down. No doubt about."

"The chances of identifying the very few managers who will beat the market are close to nil," says Professor of Economics at Princeton University, author of "A Random Walk Down Wall Street, Burton G. Malkiel.

Too often, money managers want clients to think that managing money is a difficult, complex endeavor. It is not. The complexities of wealth management occur when the client's needs and desires require paying attention to wealth transfer, health care, real estate, death taxes, income taxes, and legal documents. Look for an advisor who offers a simple investing strategy and is prepared to help you maneuver the wealth management complexities of the rest of the story.

Contact us to begin charting your best course to a financially secure tomorrow