Ely Prudent Portfolios, LLC manages investment portfolios based on modern prudent fiduciary practices. These practices are objective, sensible, backed by data, and effective. And they are the foundation of our disciplined, diversified, low-cost, and tax-efficient investment strategies.
Our central consideration when investing and managing assets is determining the appropriate tradeoff between portfolio risk and return for each client’s unique set of circumstances.
The first and most important step in balancing risk and return is the proper allocation of investment assets between cash, fixed income investments (bonds, certificates of deposit, etc.) and stocks. Each of these elements has a purpose in building a prudent portfolio.
The time horizon is a key factor in balancing a portfolio. For short-term portfolios, safety of principle is the most important consideration. As the time horizon lengthens, growth becomes an increasingly important consideration.
There is a “right” and a “wrong” kind of diversification. The wrong kind of diversification emphasizes the expected return of the individual investments in a portfolio. The right kind, instead, focuses on the risk of the entire portfolio and the relationship between the different investments instead of the expected returns of each one of them.
Counterintuitively, investors (both professional and amateur) who pick investments they believe will have the highest expect return may actually be decreasing the probability of long-term success because of poor diversification.
Index and Institutional Asset Class Funds
Index and asset class funds are the most efficient and effective way to diversify portfolios. They are effective because they provide broad and constant diversification within asset classes. They are efficient because they provide this diversification at very low costs.
Rebalancing is nothing more than selling securities that have risen in value and buying ones that have fallen. Its purpose is to keep risk and return in balance by keeping a portfolio's allocation in line with its targets. It also enhances returns by causing investors to buy low and sell high. Regular rebalancing is one of the most effective factors in determining long-term success. It is very simple to understand but, unfortunately, it is very difficult to do because it runs contrary to what our emotions tell us to do.
The old adage, “It’s not what you pay. It’s what you get,” is wrong. The data is overwhelming that costs matter significantly. Therefore, we incorporate strategies that control the visible expense costs, as well as the invisible transaction costs.
Taxes reduce net returns and after-tax wealth. So, we use asset location strategies that assign investments to the appropriate taxable, tax-deferred, or tax-free investment accounts. We offer tax-managed strategies that seek to reduce capital gains, especially short-term capital gains. And, we develop tax-efficient distribution strategies that comply with the required minimum distribution laws.