Frequently Asked Questions

  1. Which mutual funds and exchange-traded funds do you recommend?
  2. Can you describe more details on Pragmatic Portfolios, LLC's investment philosophy and approach?
  3. Why does Pragmatic Portfolios, LLC use a flat fee-only pricing model?
  1. Can you discuss risks of investing?
  2. You referred to an investment style influenced by well-established research results. Can you suggest a relevant author list?
  3. You mentioned a focus on education. Please tell me more.
  4. Can you tell me about the firm's management?
  1. Which mutual funds and exchange-traded funds do you recommend?

    Pragmatic Portfolios, LLC receives no commissions, gets paid only directly by clients, and compensation does not vary based on the recommended portfolios. Therefore I have no conflict-of-interest tempting me to recommend any specific provider, and I'm free to recommend only investments that are in the best interests of clients. Fortunately there are many fine investment products in the marketplace, from providers including but not limited to Bridgeway, Fidelity, iShares (Blackrock), Schwab, State Street, TIAA-CREF, T. Rowe Price, Vanguard, WisdomTree, and many others.

    Every person has their own 1) need, ability, and willingness to take risks; 2) current investment providers; and 3) current investments. For example, through their workplace many people participate in defined contribution plans (e.g. 401k, 403b, etc.) in which a limited set of options are available. Every individual's specific circumstances and accounts must be holistically considered before any recommendations can be developed, so no specific investment recommendations can be provided here.

    That said, investors in Vanguard mutual funds and exchange-traded funds benefit from the unique Vanguard corporate structure. Every Vanguard fund owns a proportional share of the company that runs the funds. Since the fund investors own the funds, in turn they are indirect owners of the company. This unique structure means no private owner or stockholders seek a share of the profits, and in turn allows Vanguard's investment managers to fully devote their energies to saving costs and improving returns for investors in the funds. Therefore recommended portfolios may often contain one or more Vanguard funds.

  2. Can you describe more details on Pragmatic Portfolios, LLC's investment philosophy and approach?

    My goal is to become my clients' chief investment adviser and to complement efforts of their other advisers in serving their best interests. In a personal investment planning engagement, I always act in the best interests of clients and place their interests ahead of my own. The firm's flat fee-only pricing model helps ensure my interests are completely aligned with my clients'. Moreover, clients are best served when informed, educated and proactively involved in their personal financial affairs. Accordingly, I believe in periodic communications with clients to help educate them about the investment planning process and the facts of their own personal investment situation. Ideally face-to-face or video-conference meetings will take place at least annually (sometimes more often), and email and phone communications will occur more frequently.

    I believe the future is unpredictable so we must plan for multiple possible outcomes. Future returns of capital markets are not something that can be reliably forecasted, especially in the short and medium term but also over the long term. Virtually all investments entail risk of loss. Nonetheless there are steps investors can take to maximize their chances of successfully achieving their future goals, and perhaps even more important to minimize the risk of failure.

    All investors can benefit from adhering to a personalized investment policy statement (IPS). An IPS provides an all-weather plan that helps investors to 1) maximize long-term after-tax return within a chosen asset allocation; 2) minimize the negative impacts of emotions; 3) moderate risk; 4) focus attention on important investment metrics that can favorably impact long-term after-tax returns; and 5) realize numerous other benefits. I work with clients to design an appropriate IPS reflecting their individual situations.

    I help clients to consider assets and available options across all relevant client accounts collectively, as part of a single cohesive plan. For example this may include taxable accounts and/or 401k, Traditional IRA, Roth IRA, 403b, 401a, HSA, 529, 457, TSP, or other plan types.

    I recommend plans that include multiple asset classes, taking into account a client’s unique need, ability, and willingness to take risks. Perhaps the most important asset allocation decision would be the percentage of equity (stock) instruments vs. fixed income (bond) instruments. Other asset classes to diversify across would be large vs. small, value vs. growth, domestic vs. international, developed vs. emerging, short- vs. long-term, government vs. corporate, etc.

    In addition to helping clients develop appropriate asset class allocation decisions, I help to develop appropriate asset class location decisions. When given a choice, certain asset classes are preferable to hold in taxable accounts, whereas less tax-efficient investments belong in tax-advantaged accounts if there is sufficient room. An individual investor's availability of account types may influence which asset classes are optimal to include within their customized plan.

    Another important consideration is which investment vehicles are chosen to represent the desired asset classes. I generally favor low-cost indexed / passively managed mutual funds and exchange traded funds (ETFs) where possible. The wide diversification of these investment vehicles helps reduce uncompensated risks. They also minimize costs (expense ratios, taxes, transaction fees, commissions, market-impacts, etc.) that can significantly detract from investor returns over time.

    Depending on the specifics of a client's situation, it is usually advisable to periodically rebalance a portfolio back to the desired investment allocation policy after market forces inevitable cause the asset allocation to drift from policy. Rebalancing might be triggered 1) on a fixed periodic timetable; 2) according to when an asset allocation has drifted beyond its target percentages by a certain percentage band; 3) as required due to cash flows to or from the portfolio; or 4) more likely, using some combination of all of these methods.

    It’s generally wise to periodically assess taxable investments for possible tax-loss harvesting (TLH) opportunities. Assuming it makes sense given an individual’s personal tax and asset situation, then TLH can be implemented. From time to time, TLH opportunities present themselves in taxable accounts when an investment position has fallen below its initial purchase value. TLH entails selling the underwater security to realize the loss, and buying a similar but not substantially identical security to replace it. The realized loss typically can result in lower income taxes during the current or future taxable year(s), and/or provide flexibility to realize tax-free gains in other securities that have gone up in value. Purchasing the similar but not substantially identical replacement security maintains the desired asset allocation specified by the investor’s Investment Policy Statement.

  3. Why does Pragmatic Portfolios, LLC use a flat fee-only pricing model?

    An investment adviser firm has a fiduciary duty to its clients. Clients are owed undivided loyalty and effort, and their interests must come first. Accordingly, in every way possible the firm's operations have been structured to remove conflicts-of-interest - including where compensation is concerned. The fee structure helps ensure the firm's loyalties are directly aligned with clients' situations, goals, needs, and objectives.

    Many investment advisers and brokers have a fee structure based on a percentage of assets under management (AUM), commissions based on which products are purchased by the investors, or some combination of both. In my opinion, investors are better served with a flat fee arrangement that does not vary based upon the AUM or particular products. By charging only flat fees, serving the best interests of clients is my only goal. I have no incentive to recommend changing form or custody of assets, other than where it would best serve client interests.

    Another reason AUM-based fees don’t make sense is the level of effort does not change proportionately with AUM. Often times the level of advisory effort is similar whether the client’s AUM are $250,000, $500,000 or $5,000,000; accordingly my fees don’t vary proportionately.

    I accept no income through soft-dollar revenue sharing arrangements, commissions, referral fees, etc. My sole sources of income are the flat fees for service that vary according to each client’s unique situation and desired services. I do not sell products, only investment planning and management services. The industry is littered with cleverly designed products designed to separate investors from their wealth by using obfuscating techniques that enrich the product providers, usually without the investor's knowledge of the extent of the true underlying costs they are bearing. I'm not forced or pressured to recommend only a specific provider’s investment options. Instead I'm free to recommend only investments I truly believe are in the best interests of my clients.

    Another benefit of this fee structure is I'm ready, willing, and able to provide advice on client accounts not directly under my management, such as 401k's, 403b's, etc. In my judgment it is very important that holistic investment plans be developed for each client's unique situation - plans coordinated across all of their various account types and options - and the flat-fee structure helps ensure this approach.

    This pricing model allows me to steer clear of complicated (and expensive!) investment vehicles and instead focus on the those that are likely to be of more benefit to investors over the long haul. Consequently, in most cases I'm able to recommend portfolios with investment vehicles whose aggregate expense ratios are dramatically reduced, as compared to preexisting client allocations.

  1. Can you discuss risks of investing?

    All investments carry risks of loss, some more than others. Though it would be wonderful if investments always appreciated in value, unfortunately that's not the way it works in the real world. Sometimes investments lose value, and occasionally the drops can be gut wrenching - especially with equities (stocks) although declines also can and do occur with fixed income assets (bonds).

    Despite the numerous risks associated with investing in equities, many people invest due to an expectation it is likely they'll be rewarded with higher returns over the long term. Note that long term could turn out to be many years, and likely does NOT mean guaranteed. There are no guarantees regarding future expected returns.

    Larry E. Swedroe, author of numerous works on personal investing, often reminds investors to "never treat the unlikely as impossible and don't take more risk than you need to (at least without being fully prepared for the possible consequences)" (e.g. see this link). I believe these to be words of wisdom.

    As another finance author William J. Bernstein notes so well, investors should expect that during "the course of earning those higher [expected] returns, your portfolio is going to lose a truckload of money from time to time. If you desire perfect safety, then resign yourself to low returns. It really cannot be any other way."

    For example, during recent memorable periods US stock market indices dropped significantly: by almost 50% during the 2000-2002 crash, and by almost 60% during the 2007-2009 crash. Think that's bad? During one 1929-1932 stretch, US stock indices crashed by almost 90%(!). Though most people hope such major declines won't happen again anytime soon, it is certainly very possible. To complicate matters it’s difficult if not impossible for even investment professionals to successfully predict future price trends, especially in the short and medium term.

    What's an investor to do? First, assume that losses will occur. It’s not a matter of if they will occur; assume that indeed they will occur. We simply(!) just don't know in advance when, how, where, why, how far, for how long, or which of the various asset classes might drop in value. If a person does not have the stomach or time frame to handle losses, they should not be investing. Period. As a consequence, that individual should also be prepared for minimal changes in value, and possibly losses when inflation is taken into account.

    For those willing to bear investing risks (in order to hopefully get the rewards):

    • Diversify, Diversify, Diversify!
      • Diversify across equity asset classes such as domestic versus international, large vs. small, value vs. blend, etc., since at any given time some are rising (or falling) more than others.
      • To mitigate individual security and investment manager risks, invest in a portfolio made up primarily of passively managed mutual funds and ETFs that collectively contain thousands of underlying securities.
      • Include fairly substantial percentages of high-quality fixed income asset classes in your portfolio. This usually helps offset some of the negative effects of declines in equities and (hopefully) provides some available capital to enable buying equities when they go on sale.
    • Focus on the things you CAN control.
      • Create a personalized investment plan and STICK TO IT through thick and thin.
      • Save a lot by living below your means. If possible, do this consistently over a period of many years.
      • Build an emergency fund for a rainy day, and keep this in very safe and accessible investment vehicles. That rainy day may never come, but if it does it sure helps to have an umbrella!
      • Keep costs low.
      • Rebalance when asset allocation percentages drift out of line, according to your plan.
      • Keep in mind potential tax implications as you implement your plan.
      • Maintain a healthy sense of skepticism. If it sounds too good to be true, it probably is!
    • Don't invest energies in things you CAN'T control.
      • Avoid trying to pick individual stocks or the latest "hot" mutual fund. Typically there's extra cost involved if you try this, but without a commensurate return (on average). And the potential for large losses is often higher.
      • Don't try to time the markets. If professionals can't even seem to get this right - assume you can't either.
    • The above steps may help reduce but will not remove the negative effects of taking investment risks.
      • Know that there will likely be periods of negative performance, sometimes long ones. During these difficult times, refer back to your investment plan and continue to follow it.
    • Pragmatic Portfolios, LLC carefully considers these items and more, to help clients in developing and implementing sensible, customized investment plans integrated across all their investment accounts..

      To help manage the competing desires to seek higher returns yet minimize the effects of horrendous declines in the stock markets, I advocate healthy percentages of fixed income asset classes. Benjamin Graham, a former Columbia Business School professor and mentor of Warren Buffett, suggested bond allocations of between 25% and 75% of an investment portfolio (with a corresponding stock allocation of no more than 75% and no less than 25%). John C. Bogle, founder of the Vanguard Group and a proponent of low-cost indexed investing, has often advocated that investors consider holding a percentage in bonds equal to their age. I believe these are reasonable guidelines to start from when designing customized portfolios, however I don't view them as rigid constraints. Because each client's unique circumstances vary, accordingly so do the recommended portfolios.

  2. You referred to an investment style influenced by well-established research results. Can you suggest a relevant author list?

    Indeed, my passively managed asset allocation investment style is heavily influenced by well-established research results. Clients are encouraged to learn more by reading related books. A relevant author list might include the following, among others: Frank Armstrong, William J. Bernstein, John C. Bogle, Jonathan Clements, Laura F. Dogu, Charles D. Ellis, Eugene F. Fama, Richard A. Ferri, Kenneth R. French, Benjamin Graham, Taylor Larimore, Michael LeBoeuf, Mel Lindauer, Burton G. Malkiel, Harry M. Markowitz, Paul A. Merriman, Jim C. Otar, Allan S. Roth, Bill Schultheis, William F. Sharpe, Larry E. Swedroe, David F. Swensen, Nassim Nicholas Taleb, Edward Tower, and Jason Zweig. Please contact me today if you would like a suggested reading list.

  3. You mentioned a focus on client education. Please tell me more.

    Indeed, Pragmatic Portfolios, LLC believes knowledge on practical investment management techniques can benefit everyone. I believe in educating investors and strive to share investment information with clients and prospective clients.

    Furthermore, since client education is a key missions, some of clients become “do-it-your-selfers” over time as they become more knowledgeable about the investment plan implementation process and thus no longer require the services of an investment adviser.

    Have investment related questions? I'll give my honest answer, and if I don’t know or can’t find the answer I won’t be afraid to say so.

  4. Can you tell me about the firm's management?
    Please see this link.