Investment strategy FAQs

Portfolio Solutions has discretion over all accounts and manages portfolios day-to-day so Clients' do not have to be involved. Each portfolio follows a individual asset allocation that is decided in advance and outlined in a written Investment Policy Statement. If a Client wishes to change their asset allocation because of a change in their situation, an amendment to the Investment Policy will be initiated.

Charles Schwab will notify you by mail or email each time Portfolio Solutions makes a trade in your account. All trades are conducted in accordance with  your written Investment Policy Statement. You do not need to contact anyone when you see a trade has been made. 

Many index funds and ETFs are used in all portfolios although the percentage allocated to an asset class may differ depending on the needs of each client. In addition, taxes may affect which investments are selected for taxable accounts. If a portfolio is made up of several different accounts, such as multiple trust accounts, then there will likely be different funds allocated to the different accounts. That reduces transaction costs and increases the long-term return.

No two indexes are created equal and no two index funds or ETFs are managed in exactly the same way. We analize the underlying structure of each fund to find the ones that best represent each asset class in a portfolio. Costs are important, however the funds we selecte are not always the lowest cost funds. Rather, they best cover the a particular area of the market. Some funds we use are asset class funds rather than index funds, such as select DFA Funds. For more information, please read All About Index Funds.

Each week we compare all current portfolio allocations to their fixed strategic targets. Portfolios are looked at for possible rebalancing when their asset allocation is out of sync with target by a predetermined percentage. A decision to rebalance will be depend on the dollar amount to be reallocated, known expected future contributions or withdraws, and the potential tax consequence in a taxable portfolio.

Taxes are an investing expense and we use several techniques to help control taxable events. First, the fixed income securities selected for a high tax bracket Client consist of tax-free bonds rather than taxable bonds. Second, there are no REIT funds in a taxable account because they distribute a large amount ordinary income each year. Third, we practice tax-loss harvesting through tax-swapping. This practice generates tax losses that can be used to offset gains and other income. See this article to learn more.

Clients that are in a high federal income tax bracket generally should substitute tax-free municipal bonds for taxable bonds in their taxable portfolio. That will result in the highest after-tax income with the least amount of risk. We use either low-cost municipal bond mutual funds or individual municipal bonds depending on the client’s state of residence and the amount to be invested. Bonds that are subject to AMT are not used.

Each Client receives a detailed quarterly report outlining their performance. However, we do not publish that past performance on our website because there are many different strategies used in Client portfolios and the high cost of an annual accounting audit on all those different strategies is prohibitively expensive. Some advisors work around this issue by publishing hypothetical performance numbers based on simulated portfolios and infer those results represent how their portfolios may have done. We consider that practice unprofessional.