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Investment Philosophy
The three Ds of the TD Ameritrade Investment Management, LLC investment philosophy
Because the financial markets and our lives are dynamic in nature, TD Ameritrade Investment Management believes in using a disciplined approach through a diversified portfolio based on timeframe and ability to tolerate volatility in the market.
Dynamics
- Start investing early
- Define your time horizon and prioritize your goals
- Quantify your assets and determine what is available to support your goals
- Measure your risk tolerance against your timeframe
Diversification
- Divide your investments among equities, fixed income, and cash
- Diversify across and within asset classes
- Avoid concentrated exposure which may elevate your risk
- Consider client-focused solutions or wealth management for specific financial needs
Discipline
- Take a long-term approach
- Base investment decisions on process rather than emotion
- Consider costs and tax consequences
- Review and rebalance regularly
How the three Ds of investing apply to TD Ameritrade Investment Management's managed portfolios
Why diversification makes sense long term
Many investors believe if they just pick the right investment that is enough. However, changes in the market means investors may benefit over time from having a strategic mix of investments which are matched to their tolerance for market fluctuations. This strategy is designed to help keep investors from experiencing the more extreme market losses.
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Asset allocation helped with speed of recovery following the financial crisis
The potential benefits of diversification are most evident during bear markets. This chart illustrates the growth of different model portfolios during the financial crisis and how the more conservative portfolios took less of a hit, so they were able to recover faster.
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Equities have historically outperformed other asset classes and inflation
Equities are an important piece of any portfolio due to their growth potential and ability to outperform other asset classes and inflation over time. Different types of equities do not always move in parallel, but each type can help diversify your portfolio.
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Potential opportunities outside the U.S. should not be forgotten
Different economies are strong at different times, and the U.S. is rarely the best or worst performing developed market. Diversification represents an opportunity to include growth from other economies in a portfolio.
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Rebalancing annually can lower risk without significantly impacting returns
Rebalancing is part of the discipline of investing. Rebalancing involves taking profits from investments that have done well and reinvesting them in the portfolio across other investments that may not have performed as well to get your portfolio back to its planned allocation. This discpline is important for investors to help them avoid taking additional risk.
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Bear markets and recoveries can vary greatly in duration
Market downturns and recoveries are a normal part of investing, but not all bear markets are the same. While most investors primarily think of stock market downturns, it is important to have a disciplined plan in place to help investors navigate changes in market conditions.
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Lengthening your holding period and diversifying your portfolio can help reduce risk
Asset allocation and length of holding period have an impact on the risk and return of a portfolio. Understanding your risk level, keeping a long-term perspective, and staying the course through downturns may help improve the likelihood of reaching your goals as an investor.
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Look to diversify your bond portfolio
While many people think of the potential benefits of diversification as it applies to stocks, fixed income diversification can also be a potentially important part of managing risk in fixed income investments as well.
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Intra-year big drops don't usually mean calendar year losses
Short-term volatility can often distract investors from focusing on their long-term investment needs. Keeping a long-term perspective means having a process that is disciplined enough to account for market swings that inevitably happen each year.
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Higher returns have come with higher risk
Having a mixture of asset classes is one aspect of diversification. As an investor, it is important to try optimizing the trade-off between risk and reward based on your own individual circumstances and preferences. Making sure you have an appropriate mix of asset classes can help with the process of examining this trade-off.
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Time in the market is more important than timing the market
Investors who attempt to time the market run the risk of missing periods of higher returns, potentially leading to adverse effects on the value of a portfolio. Some of the best days in the market often follow the worst days.
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Progress toward a goal is more important than short-term performance
A disciplined process helps investors stay the course throughout difficult market conditions. Despite major market disruptions, sticking to a plan can help investors reach their goals.
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U.S. markets have recovered quickly following the last five bear markets
Recoveries following bear markets are often front-loaded, and markets can come back quickly. Investors who take their money out when times are bad or those who try to time the market could be missing out on strong returns.
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GDP growth by region
We believe in the diversification benefits of international investing. Gross Domestic Product (GDP) measures the final products and services of countries around the world. As we look at opportunities for investment, we want to identify areas that may contribute to growth moving forward. GDP is one component that is used to help identify those areas.
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Charts provided by Charles Schwab & Co., Inc., a separate but affiliated subsidiary of The Charles Schwab Corporation.