Building a Better Mouse Trap

Building a better mouse trap when it comes to investing means developing a better approach to achieving higher investment returns relative to the appropriate index. How can this be accomplished? The answer is with simplicity and a focus on the fundamentals. For individual investors who have the time and interest, it is certainly possible to create an investment strategy that provides better performance than the indices over time. However, for larger institutional investors, beating the returns of the market indices can be quite challenging, but why? Generally, the answer is that most institutional strategies are overrun by high management fees and investment managers who are not able to add excess return relative to the overall market.

So, the first step toward building a better mouse trap is to significantly reduce management fees by bringing simple investment tasks like the implementation and management of passive investment strategies in-house. Next, all underperforming external managers should be let go and replaced with managers who are consistent performers when it comes to generating excess returns relative to the index. Also, eliminating industry favoritism is necessary for those  firms that hand out millions or billions of dollars to be managed by friends in the industry who do nothing more than passively babysit client funds rather than manage them effectively. Finally, investment committees who have a responsibility to oversee institutional investments should focus more on finding better investment talent to develop more effective active investment strategies that can be implemented at a fraction of the cost charged by staff heavy external managers.

In the end, most assets that are being invested are managed on behalf of the public whether it be for public school teachers, retirees, state workers, or city employees. Currently, these investors are demanding more accountability and better returns. The lack of optimal investment performance and significant losses to invested capital have resulted in a search for better performing strategies. If you have money invested with a large institutional investor, then you should take steps and ask questions to make sure that your dollars are being carefully and creatively managed and are not just in the hands of a “fund babysitter” disguised as a fund manager. If your fund manager turns out to be a “fund babysitter” then you would be better off investing your money in a super low-cost index fund and locking in your required asset allocation which could be easily determined with a financial plan developed with any reputable financial planning professional.

For those investors who enjoy building winning portfolios that can outperform market indices with lower risks then look no further than Investoristics. The biggest driver of future investment returns is having a great equity strategy. So, no matter what your asset allocation turns out to be after a sit down with your financial adviser, here at Investoristics, we are confident that our approach would yield significantly better returns over time. Ready to get started? If so, give us a call today.