Investment Philosophy

INDEPENDENT FINANCIAL ADVISERS FUND PHILOSOPHY Like Tactical Allocation, fund selection is an active investment management strategy that picks specific funds in an attempt to make higher risk and reward-adjusted returns. While tactical allocation attempts to take advantage of systematic risk and reward (e.g. interest rates or business and industry shocks) fund selection strategies take advantage of firm-specific risk and reward. At Invest Southwest, we believe in a combination of active and passive investment dependent upon our clients’ situation, preferences, attitude and objectives. ACTIVE versus PASSIVE Advantages of Passive Investing • Passive funds tend to have lower charges than active portfolios, since they simply replicate the index with little or no intellectual input frommanagers. • The risk of significant underperformance measured against the relevant index should be limited but of course investors must be aware that markets can fall as well as rise. • Passive government bond portfolios can be an efficient way for pension funds to match assets and liabilities. Disadvantages of Passive Investing • There is no simple way to tell whether one index fund is better than another other than measuring past performance, making comparison difficult as performance data is collected in different ways by different funds. Advantages of Active Investing • These types of funds offer different investment aims rather than just tracking the market as a whole. • Investments that are not highly correlated to the market are useful as a portfolio diversifier and may reduce overall portfolio volatility. • Some investors may wish to follow a strategy that avoids or underweights certain industries com- pared to the market as a whole and may find an actively-managed fund more in line with their par- ticular investment goals. Disadvantages of Active Investing • The most obvious disadvantage of active management is that the fund manager may make bad in- vestment choices or follow an unsound theory in managing the portfolio. • The fees associated with active management are also higher than those associated with passive management, even if frequent trading is not present. • Large managed funds can begin to take on index-like characteristics because they must invest in an increasingly diverse set of investments instead of those limited to the fund manager’s best ideas.