Whether you’ve had professionals manage your investments before, or you’re completely new to it, we want to make sure you understand the whys and hows of Flow’s investment management approach.

We abide by a few simple, important principles when we invest your money:

Your 401(k) has a clear purpose: It supports your lifestyle when you become financially independent (aka, retire). But what goal does your regular investment account (“taxable brokerage” account) serve?

If the goal an account serves isn’t clear, it is hard to know how to manage it, and it’s hard to know how well you are progressing towards your goal. To provide that clarity, we encourage our clients to have one goal for each account, be it investment accounts or bank accounts.

Costs are one of the only things you can control as an investor. Low costs are proven to be highly correlated with out-performance. How does Flow keep costs low?

  1. Use investments with low annual expense ratios.
  2. Minimize the cost of buying and selling.
  3. Pay attention to taxes.
Flow constructs investments portfolios out of two basic components:
  1. High-volatility/high-return investments, like stock funds and real estate investment trusts (REITs)
  2. Lower-volatility/low-return investments, like US government bond funds and high-quality US corporate bond funds
Bonds are what help you sleep at night when it’s March 2009 and you’ve just watched the stock market lose half its value. If you want the chance for more growth—and you’re okay with the risk of loss—we invest your portfolio more heavily in stocks and real estate. We do not “chase yield” in bonds, by buying higher growth, higher volatility bonds. Even though, yes, the interest rate on government and high-quality corporate bonds is low, painfully low.
We do not allow taxes to “wag the investment dog.” We do try to minimize taxes in the following ways. Note: Remember that the biggest influences on long-term investment returns are cost and asset allocation (balance of stocks and bonds). Optimizing taxes is icing on the cake.
KEEPING YOUR EXISTING INVESTMENTS 
If you come to us with an existing investment portfolio, you might already own a bunch of stuff (technical term). Ideally, we could sell everything and move directly into our investment models, to make your investing experience consistent and efficient. In IRAs, we don’t have to worry about taxes if we sell something at a gain, so we can do just  this. In taxable accounts, we do have to worry. So, we evaluate everything you own and determine whether it makes sense to keep it, sell it, or donate it.
TAX-EXEMPT BONDS
If you are in a high tax bracket and have bonds in a taxable account, we use tax-exempt bonds.
“ASSET LOCATION”
Asset location is matching up the tax characteristics of an investment with the tax characteristics of an account so as to minimize taxes across the entire portfolio. That means that we try to place:
  • Taxable bonds in pre-tax IRAs
  • Tax-efficient stock funds in taxable accounts
  • Foreign-stock funds in taxable accounts
  • Real estate investment trusts in Roth IRAs or HSAs.
As a result, your taxable brokerage account, your IRA, and your Roth IRA will not hold the same investments.

Having more money doesn’t mean you need a more complicated portfolio. Simplicity means you better understand your investment portfolio, and understanding it means you’ll manage it better. Conveniently, simplicity is also often synonymous with “low cost.”

To that end, we use investment models with 4 basic, broad-market funds (5, if we’re using tax-exempt bonds).

If multi-billion-dollar endowments can successfully invest in a low-lost, broad-market portfolio, then so can you.