Merriman’s Take | How We Pick Investments

Merriman is an independent investment advisor. That means we don’t receive any income or financial benefit from the companies whose products we recommend for you. This keeps us on the same side of the table with you, allowing us to fulfill our fiduciary responsibility to act in the best interest of our clients, and we take that responsibility seriously.

Our research department reviews the available investment options and selects investments based on the following key principles.

Academic Research

We believe stock and bond markets are generally efficient, meaning their prices adequately reflect the information available to investors. This makes it extremely difficult to consistently “beat the market” year after year through picking stocks or market timing schemes. While there will be investment managers who outperform, it’s difficult to predict ahead of time who they’ll be.

Academic research has shown that stocks of certain types of companies (small, value, and high relative profitability) are more likely to perform better than the market in the long run. There will be years when these investments aren’t the big winners and don’t match or beat the market, but over time, they should come out on top. At Merriman, evidence-based research guides our investment selections.

Cost

After-fee, after-tax returns are what matter, and represent your true return. We strive to maximize your true return by using the most cost-effective options. We can do so because we don’t have an incentivized relationship with any of the investments we use.

In reviewing available investment options, our research department considers the way fee and taxes will affect your true return. They select the investments based on what will help our clients achieve their goals – not on compensation or incentives from the investment company.

Diversification

Over the long term, the market doesn’t reward investors who concentrate their risk in a single stock. Instead, broad diversification, holding a great number of various types of stocks, is critical in reducing risk and smoothing out the ups and downs of the market.

Diversification improves the odds of holding the best-performing assets, which may change from year to year, and reduces the impact on your wealth of any one company’s performance. Our goal is to provide significant diversification in all asset classes.

Consistent Track Record

We work to find investments that help clients achieve results over the long term. Because of this, we look for investments with strong track records that span both bull markets, when stock prices are rising, as well as bear markets, when things have taken a tumble. While there’s no guarantee the future will be like the past, having a consistent and statistically valid track record can help ensure clients are able to meet their financial goals regardless of what happens in the markets.

Additional posts in this series can be found here.