Garde Capital, Inc. Investment markets have always been a challenging place for investors to capture returns on capital that are commensurate with the associated level of risk. If not properly managed, investor capital can easily be redistributed from the supplier (the investor) to market intermediaries (brokers, advisors, traders, market makers, etc.) as a result of unreasonably high fees and taxes, investor behavioral challenges, inappropriate asset allocation, and misleading marketing schemes. At Garde Capital, our investment management philosophy is based on putting investors' interests first, while endeavoring to provide the returns they deserve for a given level of risk. Behavioral Challenges When researchers study investor behavior, one issue is prevalent: investors regularly make irrational investment decisions. These decisions are inconsistent with an expected outcome of maximizing risk adjusted return. One common example of this involves a behavior known as herd mentality. Most investors tend to sell when others are selling, and buy when others are buying. Those who are selling demand liquidity and those who are buying provide it. When the demand for liquidity significantly outpaces the supply, a market low takes place and the investor suffers when converting an asset to cash. Conversely, investors often tend to make buy decisions when there are very few sellers, and they pay a premium which can also be detrimental to long term returns. A practical way to alleviate this issue is to hire a competent agent (investment advisor) to represent your interests. An effective investment advisor is able to manage the portfolio while minimizing the impact of emotion and behavioral biases. At Garde Capital it is our goal to be highly objective and remain continually aware of when these emotions might unknowingly play a part in an investment decision. Asset Allocation Even if the investor is acting rationally, developing an appropriate asset allocation can often be a challenge. It is generally accepted that over 90% of investment return variability can be attributed to asset allocation, the relative percentage of stocks, bonds, cash, real estate, or other assets in the portfolio. Given that this is such a significant factor, we believe that investors should have some understanding of how these decisions are made. There are several schools of thought on this topic. The two most widely accepted are Harry Markowitz’s Efficient Frontier Model (MVO), and the market model derived from The Capital Asset Pricing Model (CAPM) of William Sharpe. Both Sharpe and Markowitz shared a Nobel Prize in Economics for their work, and these two models are commonly considered the backbone of Modern Portfolio Theory. Our primary asset allocation strategy combines the traditional academic work of modern portfolio theory with principles in the field of behavioral finance. Additionally, we overlay several enhancements that can mechanically and emotionally benefit clients such as adjusting for home currency bias, optimizing global market exposure, employing a rebalancing technique consistent with long-term asset allocation, and implementing tax harvesting strategies to help clients minimize their tax obligation. Active Management versus Index Investing The debate between active management and index based investing has provided a long running and emotionally charged dialogue among investors. Active management is primarily focused on individual security selection and market timing. Active managers believe they can capture extra returns for their portfolios by selecting undervalued securities that are mispriced. Index managers believe stock prices reflect all available information, and that extra returns cannot be found by searching for undervalued securities. It is our contention that on a risk-adjusted basis, active management is very difficult to justify and ultimately makes index investing all the more attractive. We believe that index investing stands on solid theoretical and empirical grounds, is transparent and low cost, and has proven over and over again to beat the majority of active investment strategies. The Garde Capital Advantage At Garde Capital, our primary objective is to help clients get the most out of their investment assets. We endeavor to harness risk premiums provided by global capital markets, create well diversified efficiently managed portfolios, and deliver them at the most competitive price we can, because fees matter. All portfolios are separately managed to meet the specific risk-management needs of each client, providing the best chance to achieve individual financial goals.