Risk and Return are Related

We believe that exposure to risk factors, not selection of individual securities, is the primary determinant of expected return. Over time, riskier assets provide higher expected returns as compensation to investors for accepting greater risk.

Financial research has demonstrated that risk is best minimized by holding assets over time and by diversifying with low-correlation assets. We manage portfolios in a manner that seeks to minimize principal fluctuations within realistic market expectations consistent with the stated objectives and the chosen asset allocation over the established horizon.

Investors must understand that risk is inherent in investing and results could be better or worse than initially anticipated. There will be times when negative short-term performances must be tolerated in order to meet longer-term objectives as a result of expected long-term returns.

It is also very important to remember the risk that inflation poses. If a portfolio is not designed to outpace inflation, it effectively looses purchasing power because of the eroding effects of inflation.