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Investing

A prudent, well-structured investment process is more likely to incur lower costs, make fewer mistakes, and be less susceptible to market swings. 

At Allodium, we believe that investors are best served with objective advice based on academic research from highly respected sources.

We believe that investors can benefit by adopting a long-term investment time horizon and developing investment plans that allow them to participate in the growth of the capital markets over time.

Patience, we believe, is a virtue that can reward the informed investor.

Financial advisors discussing investment strategies with clients

Investment Approach

We believe in the science of investing. In our view, investors should focus on the few things that they can control: diversifying their portfolio, reducing expenses, minimizing taxes, and sticking to a disciplined investment plan. Our unbiased approach to investing leads us to manage investment risk with broad diversification. We diversify both by asset class and by individual security.

We prefer to implement asset allocation strategies using low-cost, tax-efficient investments. We encourage our clients to hold low-cost funds and to maintain their asset allocation strategies during periods of market volatility.

Allodium’s investment approach is logical, transparent, and based on academic insights. We follow a scientific, evidence-based and disciplined investment method that helps investors to make investment decisions.

Our investment approach allows the investor to control the important investment policy decisions while delegating the details of portfolio management to professionals. 

Yale University campus representing evidence-based investment research

Investment Strategy

Allodium advisors discussing investment strategy during a team meeting

Investment strategy or “portfolio construction” is the tangible manifestation of an investment philosophy. The investment decision-making process requires an investor to choose which asset classes and investment vehicles to include in a portfolio strategy.

Most long-term investors develop an investment strategy to address three common goals:

  1. Manage investment risk and preserve capital.
  2. Provide growth of capital or corpus.
  3. Establish a future income stream from the portfolio.

Many of the largest academic institutions in the United States use evidence-based investment concepts, grounded in Nobel Prize-winning ideas, to develop their investment policy, manage investment risk, and implement their investment strategies.

College investment committees tend to be thoughtful and deliberate as they aspire to fulfill their fiduciary obligations under the law. They diversify by asset class to manage investment risk, then implement their investment strategies using low-cost institutional mutual funds. This method is known as the Endowment Model because many large colleges use it to manage their endowment funds.

Allodium believes that many investors should consider applying the academically-based science of investing to develop thoughtful and prudent investment strategies like a college endowment fund committee. We have adopted many of these evidence-based strategies into our investment strategy. We want to model the prudent investment practices of large institutional investors—what we believe to be some of the most appropriate practices of fiduciary investment management.

Investment Philosophy

These are the core beliefs about investing that guide our investment process:

Markets Work

Markets have a history of rewarding investors for the capital they supply. Companies compete for investment capital and millions of investors compete for the most attractive returns. Markets quickly incorporate information from this competition into security prices.

Diversification

Diversification by asset class provides investors with some control over portfolio risk. Diversification by security enables them to capture broad market forces while reducing the uncompensated risk associated with individual securities.

Investors Versus Speculators

Traditional investment approaches strive to beat the market by taking advantage of perceived pricing “mistakes” and attempting to predict the future. These approaches could prove to be costly and futile. 

Focus on Your Plan

An investment plan based on the science of investing frees you to focus on other things. Let the markets work for you by taking advantage of sensible, well-diversified, low-cost portfolios backed by research.

We prefer to implement asset allocation strategies using low-cost investments that are tax efficient. We encourage our clients to hold low-cost funds and to maintain their asset allocation strategies during periods of market volatility.

Investment Discipline

Investors do not always make sound investment decisions. Human emotions unwittingly cause investors to fail through self-destructive behaviors. These negative behavior patterns could interfere with achieving optimal returns.

We call these suboptimal returns the behavior gap. The “behavior gap” is a term coined by Carl Richards and has become a popular way to refer to the loss of investor returns due to emotional decisions.

Sticking to the sage discipline of an intelligent, logical, and evidence-based plan can mitigate the risk of making faulty decisions. Investors can reduce the emotional decision-making mistakes that cause the behavior gap by adopting an investment structure that can reduce the number of decisions required to be made by the investor. Investors can delegate decisions by giving investment decision-making authority to two complementary types of discretionary investment professionals:

    Investment managers sitting at a table

    Investment Managers: Investors can delegate the decisions related to the purchase and sale of individual securities by utilizing professionally-managed funds such as index funds, mutual funds, exchange-traded funds (ETFs) and separately managed accounts.

    Investment Management Consultants: Investors can delegate the decisions related to rebalancing a portfolio by asset class to an investment management consultant.

    Responsible investors make a smart decision to delegate the investment decision-making authority to professional investment advisors.

    “CEFEX certification is like the Good Housekeeping Seal of Approval
    for advisory firms and nonprofits.”

    — David Bromelkamp, Founder

    Investment Process

    A fiduciary is a person or organization that is entrusted to act on behalf of another and strives to put that person’s interests first. As a fiduciary, Allodium follows a disciplined investment process designed to serve our clients’ best interests. Our approach provides a prudent framework for selecting and monitoring investments and investment managers, documenting decisions, and providing ongoing oversight.

    In August 2016, Allodium became the first Minneapolis-based investment firm to earn CEFEX certification for fiduciary excellence.

    What are the advantages of working with a CEFEX-certified fiduciary? CEFEX certification provides clients with independent assurance that their advisor follows documented and disciplined investment processes based on established fiduciary best practices.

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    Broadridge Governance Solutions

    Broadridge Governance Solutions (formerly Fi30®) provides fiduciary education, training, tools and resources designed to help investment professionals implement a prudent standard of care. Founded in 1999 as Fi360® and now part of Broadridge, the organization developed the Prudent Practices for Investment Advisors handbook as a globally recognized set of fiduciary best practices that help investment professionals meet their legal and ethical responsibilities.

    Broadridge Fiduciary Governance Solutions offers the Accredited Investment Fiduciary® (AIF®) designation, which provides investment professionals with training in fiduciary principles and the Prudent Practices for Investment Advisors handbook to help advisors apply a prudent fiduciary process and demonstrate their knowledge and commitment to acting in the best interests of those they serve.

    CEFEX

    CEFEX® Centre for Fiduciary Excellence, is an independent certification organization that assesses investment advisory firms against established fiduciary standards and industry best practices. CEFEX certification provides independent recognition of a firm’s commitment to fiduciary excellence and adherence to a defined Standard of Practice.

    Learn More
    Investment Philosphy
    Investment Discipline
    Investment Approach
    Investment Strategy

    Let’s Meet

    We invite investors with portfolios over $1 million to a
    complimentary “Get Acquainted” meeting with one of our
    financial advisors.

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