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Investment Philosophy
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Triangle Wealth Management's Investment Philosophy impacts our views on Financial Planning and Asset Management.
Investors should pay for an investment process, not products. Our process for selecting investments (primarily no-load mutual funds, but also ETFs) considers:
- Does the fund have a 10 year history ?
- 10 year mean return, standard deviation, Sharpe ratio, Treynor ratio ?
- Annual fund mgmt costs.
- Does the fund use 12b-1 fees (we prefer no 12b-1 fees) ?
- Does the fund have a sales load? If yes, can it be waived?
- Fund turnover rates. (lower is better)
- Morningstar ratings are considered but do not weigh heavily since these ratings are usually based on the past 3 years of performance. This is not as desirable as 10 years since it is more difficult to have a fund perform over 10 years than 3.
- Minimum amount the fund will accept.
- Is the fund proprietary (can it be moved from one custodian/broker to another)?
- Does the fund remain true to its intended asset class or does the asset class drift ?
- Business metrics:
- Price / Earnings (P/E)
- P / Book value
- P / Sales
- P / cash flow
All of these factors are considered, but the 2 most important are Cost and Treynor Ratio. Here's why.
Cost: The only factor that can be controlled with confidence is cost. Every other factor uses an assumption related to historical performance. The total cost in investing should be minimized - but not to the detriment of performance.
Treynor Ratio: This is a measure used to provide a view of performance returns per unit market risk taken. The higher the Treynor ratio, the greater your reward (investment return) given an amount of market risk taken.
Example:
- A) Your investment had an average annual return of 9%, had volatility from market risk of 4%, and the risk-free rate of return (say 1 month T-bills) was 3%. Your ability to be rewarded for the risk you took can be expressed by the Treynor Ratio as:
T = (9 - 3) / 4
= 1.5
- B) Your friend (bragging at a social event) tells you he had 11% returns during the same time period but the volatility was high. You determine his investment had volatility from market risk of 8% (your financial planner determines this for you). Using the same risk-free rate of return, you calculate (have your financial planner calculate) his Treynor Ratio as:
T = (11 - 3) / 8
= 1.0
Your Treynor Ratio was 1.5, but his was 1.0. Higher is better. What does this mean? It means that you were better rewarded for the amount of risk you took. Had you been comfortable with the same amount of risk as your friend, a portfolio (same Treynor ratio as yours) could have been constructed to have the same risk/ volatility but it would have had a much higher return than 11%:
- 1.5 = (R - 3) / 8
Solving for R (return) yields that R = 15% !
This means you could have assembled a portfolio with the same market risk (volatility) as your friend, but had 15% returns- not 11%.
This is what we do at Triangle Wealth Management - attempt to maximize returns for a given amount of market risk - while keeping costs low.
Investment Vehicles we use
Triangle Wealth Management LLC uses the following investment vehicles (in financial planning and modeling, as well as asset management) :
Equity & Bond mutual funds
(mostly no-load, no 12B-1 fee, low management fees, low trading costs)
Unit Investment Trusts (UITs)
Exchange Traded Funds (ETFs)
Listed Stocks
Corporate Bonds
Municipal Bonds
Federal Government Bonds
Real Estate Investment Trusts (REITs)
Money Market Funds
Certificates of Deposit
(Rarely, we may use an ETF that shorts a market to hedge against perceived short term market risk)
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Disclosure
Triangle Wealth Management SM, LLC (TWM) is a Registered Investment Advisory firm located in Cary, North Carolina. We do not provide investment advice from this website. The website is intended to provide general information about our services. The website provides copies of articles we have published and retained copyright. Advice is only provided when:
1. We provide a disclosure statement to the client.
2. Execution of Engagement Agreement, Investment Advisory Agreement, and Asset Management Agreement is done.
3. Payment of a planning or investment advisory fee is received.
TWM will conduct business in states where it is registered. TWM will provide a copy of our fee schedule upon written request. We make no representation for the accuracy of information provided on sites linked to our website.
TWM uses Ameritrade for custody and brokerage services. TWM receives no remuneration from Ameritrade indirectly for services provided to clients. All fees (custody, trading, any other) charged by Ameritrade on the client’s account are direct, and in no way involve TWM. TWM will not have custody and will not have discretion of client assets.
TWM may recommend Mutual Funds from Dimensional Fund Advisors (DFA). TWM receives no remuneration whatsoever from DFA. TWM is in no way affiliated with DFA. Doctorwealth.com LLC is owned by Triangle Wealth Management LLC.
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