Investment Philosophy

The DIAC investment philosophy is based on the following:

RISK

• DIAC believes that the greatest risk investors face is purchasing power risk. The risk that the purchasing power of our assets will erode over time is a very long term risk, and one that cannot be readily observed on a day-to-day basis.
• In order to preserve & enhance the purchasing power of accumulated assets, those assets must have a substantial allocation to asset classes that are more likely to outperform inflation over the long term. These asset classes include equities, commodities and real estate. We refer to these asset classes as "risky assets".
• While "risky assets" are more likely to outperform inflation over the long term, they can experience wide swings in price over a short period of time. So, the risk associated with risky assets is that of being forced to sell those assets in a period of price weakness. The period of price weakness could extend for weeks, months or years.

ASSET ALLOCATION

• DIAC manages these short and long term risks by allocating client assets among sets of risky and less risky assets. All assets carry some element of risk.
• To mitigate the risk associated with risky asset price volatility, the portfolio must also have an allocation to less risky asset classes (fixed income & cash).
  This allocation serves to:
  • Meet cash flow needs during the period of risky asset price weakness (again, this can be a week, a month or several years).
  • Rebalance the portfolio by buying risky assets when prices are low.
• The allocation between risky assets and less risky assets is largely driven by the portfolio time horizon. The greater the period of time before regular portfolio withdrawals begin, the greater the allocation to risky assets will be. Individual risk tolerance and circumstances also play a key role in the asset allocation.
• Diversification among and within risky and less risky assets is critical. Market leadership rotates among the many asset classes, economic sectors, and geographic regions. We believe that this rotation is not predictable. Therefore, we create broadly diversified portfolios and actively rebalance them. We use mutual funds, exchange traded funds and other diversified instruments to construct client portfolios.

DISCIPLINE

• DIAC believes that there is no "right" asset allocation. Rather, we believe the allocation must be reasonable for each client. The more important aspect to the management of your portfolio is the discipline to the allocation selected. When risky assets fall significantly in price, the portfolio will become underweight in these inflation fighting assets. The portfolio must be rebalanced by buying risky assets (buy low). Conversely, when risky assets rise significantly in price, the portfolio will become overweight in these assets. Again, the portfolio must be rebalanced by selling risky assets (sell high). Active rebalancing is critical.
• Portfolio cost is very important, as every penny of fund expenses reduces fund performance. When selecting funds for the portfolio, cost is a major driver in the decision making process. These costs include, but are not limited to: the funds total expense ratio, loads (front-end or deferred), portfolio turnover, tax efficiency, 12b-1 fees, and transaction costs. DIAC does not receive any fees, commissions, or payments of any sort from any of the funds or fund companies used in our client portfolios.
• Selecting fund investments based solely on recent performance is counter productive. DIAC does not argue that markets are truly efficient, and we recognize that managers can and do outperform for varying periods of time. However, we strongly believe that it is virtually impossible to identify these managers before they get hot, or before they turn cold. Chasing performance does not work. Our practice is to use a combination of index funds and low cost actively managed funds that have solid long term track records and that demonstrate discipline to their specific investment processes.