Garde Capital, Inc. Investment markets have always been a challenging place for investors to capture returns on their capital that are commensurate with the associated level of risk. More often than not, investor capital is redistributed from the supplier (the investor) to market intermediaries (brokers, advisors, traders, market makers, tax, etc.) as a result of unreasonably high costs, investor behavioral challenges, poor 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. Investors' Behavioral Challenges When researchers study investor behavior, one issue is prevalent: advisors and investors regularly make irrational investment decisions. These decisions are inconsistent with an expected financial outcome where the investor attempts to maximize risk adjusted return. The most 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 buy 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. Unfortunately, most investors possess two very common emotions that challenge rational investing related to this particular mentality: fear and greed. A practical way to alleviate this issue is to hire a competent agent (investment advisor) to represent your interests. When hiring such an agent, one should be certain that the advisor does not suffer from the same emotional bias, thus the benefit of the advisor should be greater than the cost of the advisor. A primary goal at Garde Capital is to be highly objective in this capacity, and be aware of when these emotions might unknowingly play a part in an investment decision. Asset Allocation Should an investor manage to avoid behavioral biases, the next most significant impact on investment performance is asset allocation. It is generally accepted that about 90% of investment variance is derived from asset allocation (how much in stocks, bonds, cash, value, growth, etc.). Given that this is such a significant factor, we believe that investors should fully understand how this decision is 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) from 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 espoused by Sharpe and Markowitz with the 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, properly selecting 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 versus Indexing The debate between active management and index based investing has provided a long running emotionally charged dialogue among investors. The basic principles of active management involve 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. Neither approach is perfect, and there will undoubtedly be a dichotomy between the two for years to come. However, it is our contention that adjusted for risk, active management ironically makes indexing all the more compelling, and empirically, adjusted for expenses, active management is just not justified. On the other hand, index based investing, stands on solid theoretical grounds, has strong empirical support, is transparent and low cost, and has proven over and over again to beat the majority of active investment strategies. Winning by Not Losing - Garde Capital At Garde Capital, our primary objective is to help our clients get the most out of their investment assets. We endeavor to harness risk premiums (returns above cash returns for adding risk) 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, in all, giving them the best chance to achieve their individual financial goals.