Our Investment Philosophy
Mariposa’s investment philosophy emphasizes long-term focus, full diversification, passive investments, tax efficiency, and cost minimization. The strategies employed are grounded in the latest academic and industry research, similar to that of a large institutional investor.
Long Term Focus. Mariposa employs a strategic asset allocation policy that gradually slides from aggressive to conservative as financial needs become closer. This long-term strategy avoids short-term market bets that are both financially and emotionally counterproductive.
Full Diversification. Mariposa’s investment strategy employs a level of diversification that is beyond what is typically utilized. Our full diversification into non-US stocks, real estate, and commodities is backed by academic and industry research, and employed successfully by large institutional investors.
Passive Investments. All of Mariposa’s recommended investments are passive products, generally index funds or ETFs. Extensive research has shown that active managers rarely beat the market on a consistent basis. As such, our philosophy of passive investments mitigates the risk of performing worse than the market.
Tax Efficiency. Mariposa employs multiple strategies to minimize taxes and to maximize the benefits of tax-advantaged accounts. Examples of these strategies include after-tax asset allocation, tax-smart asset location, and tax loss harvesting.
Cost Minimization. Since the easiest way to increase returns is to reduce costs, Mariposa strives to select funds with low fees and does not perform unnecessary transactions to help keep costs low.
Our Investment Process
Mariposa utilizes a 5 step process in investing your assets:
1. Client Assessment
2. Asset Allocation Design
3. Investment Selection
4. Portfolio Construction
5. Ongoing Maintenance and Review
Client Assessment. This step defines and evaluates your investment objective, current financial situation, intended time horizon, and risk preference.
Asset Allocation Design. An asset allocation policy is designed considering the client assessment above. First, your allocation to cash, bonds, and risky assets are determined using a proprietary risk model. Next, the allocation to risky assets is divided amongst stocks, real estate, and commodities. Finally, future asset allocations are estimated, creating a glide path.
Investment Selection. Generally, Mariposa chooses index funds and ETFs to represent each asset class. The specific investments are chosen using various factors, including the tracked index, the fund management firm, the size of the fund, the expense ratio, and the average daily volume.
Portfolio Construction. The proposed portfolio is constructed to minimize transactions costs and to maximize the use of tax-advantaged accounts, such as 401k’s and IRAs. The most tax inefficient investments are placed in tax-advantaged accounts. Examples of tax inefficient investments are commodities, bonds, and real estate; stocks, especially US stocks, are relatively tax efficient.
Ongoing Maintenance and Review. The performance of your portfolio is monitored on an ongoing basis, with aggregated performance reported and reviewed versus appropriate benchmarks at least quarterly. Your portfolio’s asset allocation is also evaluated against your target at least quarterly, resulting in rebalancing trades if the divergence is significant. Additional trades may be executed in taxable accounts for tax loss harvesting.
