Investment Philosophy

At Bright Lantern, our investment philosophy is composed of 3 pillars.

Pillar 1: Managing risk and reward

An important key to investing is to remember that stocks are not lottery tickets.
– Peter Lynch, longtime manager of The Fidelity Magellan Fund

There’s no escaping it: if you want higher investment returns, you have to accept higher risk. But how much risk is OK? One of the most important things we do at Bright Lantern is work with you to find the right level of risk for your portfolio by looking at your need, ability, and willingness to take risk. This will allow us to determine how much of your portfolio to place in high risk assets like stocks vs. low risk assets like US Treasury bonds. We use broadly diversified index funds and ETFs to reduce risk further by avoiding the “eggs in one basket” scenario (or even the “eggs in a few baskets” scenario). In this way, we can help you achieve your financial goals while taking on as little risk of loss as possible.

Pillar 2: Keeping costs down

In investing, you get what you don’t pay for.
– John Bogle, Founder of The Vanguard Group

Morningstar conducted a recent study to determine what factor played the biggest part in a mutual fund’s performance. The most predictive factor was the mutual fund’s expense ratio — the lower the expense ratio, the better the fund performed. This was more predictive than even Morningstar’s own star rating system!

We recommend passively managed no-load index funds and ETFs for our clients because they have low expense ratios and low turnover. Study after study has shown that the vast majority of actively managed mutual funds underperform comparable passive index funds due to the higher fees and turnover-related costs associated with actively managed funds. Passive index funds are the only way to guarantee you get your fair share of the market’s returns.

Expense ratios aren’t the whole story though. How often your account is traded matters too. That’s because every trade has costs associated with it. We trade client accounts we manage infrequently. With the correct asset allocation in place, there is no need to make frequent changes to your portfolio. We will typically only trade your account to harvest capital losses for tax purposes, rebalance your portfolio, or make changes if your goals have changed.

Our commitment to low costs extends to the fees we charge. While the industry standard is to charge 1% of assets under management to manage a portfolio, our management fee starts at .75% and goes down as low as .25% of assets under management.

Pillar 3: Reducing your tax bill

The avoidance of taxes is the only intellectual pursuit that carries any reward.
– John Maynard Keynes, Economist

Everybody has to pay taxes, but you shouldn’t pay more than you have to. We help you keep your money in your pocket by:

  • Placing tax-inefficient assets in tax-advantaged accounts like IRAs and 401(k)s.
  • Harvesting capital losses to lower your tax bill.
  • Considering municipal bond funds for your portfolio, which are exempt from federal tax.