Investing small amounts for the medium term (Part 1 of 3)

Genevieve Signoret

Letter from the President

This is part one of a three-part series on how we’re coping with trading fees on small transactions. We illustrate our approach by focusing on a situation we often face: a client has a large account but, within it, one small “bucket” (portfolio). We consider the case in which the client’s investment horizon for this bucket is medium-term.

In Part 1, I summarize the whole series. In Part 2, I explain why smaller portfolios require simpler strategies, regardless of whether the brokerage account is held in the USA or Mexico. In Part 3, I lay out our simplified strategy for the medium- term bucket.

Part 1: Summary

We manage large accounts but divide them into “buckets”, one per client investment objective, and some of these buckets are small—sometimes too small to justify a complex strategy. In these cases, we devise a simplified version. We do this to keep trading fees down. Several of the accounts we manage today happen to have particularly small buckets invested for what we define as the medium term: two to five years. For these, we’ve devised a simplified version of our medium-term strategy. It allocates capital across just four assets: cash and three exchange traded funds (ETFs): a single world stock fund, a fund that buys U.S. investment-grade corporate bonds, and a third fund that buys U.S. Treasury bonds. For small buckets, this simplified strategy holds transaction costs down relative to our standard medium-term strategy by holding more cash and fewer funds.

Update History:

• 17 July 2015: Hyperlink added to the phrase “Part 2”