Passive Index Funds

Purposefully selected, rebalanced as needed.

Objective:

Reasonable returns while accepting a suitable amount of volatility.

Solution:

Low-cost diversification through passive index funds.

Why we like it:

Historically, collectively, owning a small slice of a lot of companies (i.e. investing in stocks) has produced positive – if choppy – returns. 

Likewise, lending to a lot of borrowers (i.e. investing in bonds) has produced positive returns which, though not as lucrative as stocks over the longer-term, has tended to smooth out the ride.

Building a low cost, low effort portfolio of many (many…) stocks and bonds is considered by a lot of people to be the most practical way to target a reasonable outcome for your investments.

As an added bonus, if you really commit to the “low effort” part, it is easier to avoid rash decisions such as panic-selling at the bottom – you just set it and forget it.

A word of caution:

Passive index investing may appeal to those who believe it is better to be approximately right than precisely wrong.  While this mindset has merit, it risks oversimplifying some important nuances.  Investing always involves risks, gains are not guaranteed, and there have been extended periods where a low-cost passive index strategy would have led to significant negative returns.  Suffice it to say that we do not agree with this approach in every scenario.

How we (hope to) add value:

While index investing sounds simple on the surface, it does not take long before you discover there are many views on how to actually implement a passive approach.  Most of these perspectives are reasonable, and are similar enough to make it a matter of splitting hairs.  Having said that, choosing which passive funds to hold, and in which proportions, is an active decision.  

At EAO Capital, we can help you to select a diversified and relatively low-cost portfolio of index funds that reflects your goals, preferences, and constraints.

Step 1: Determine which mix of stocks and bonds is suitable for your objectives and risk tolerance.

Step 2: Select low-cost index funds in the targeted proportions.

Step 3: Monitor and suggest rebalancing back to target, as needed.

Whether passive or active, EAO Capital constructs portfolios that respect our core investment principles while staying true to what matters to you.