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ABOUT THE AUTHOR

Since 2007, Ben has been involved in refining our money management process. As a member of the Pure Investment Committee, Ben works on managing the tax-efficiency of our clients’ investments while researching the most current, academically-based investment theories. He is focused on keeping client-related investment costs down and positioning our portfolios to target the greatest [...]

Published On
April 20, 2020

To the individuals and families we serve,

Given the spike in market volatility due to the COVID-19 pandemic, this seems like a good time to discuss how Pure Financial Advisors’ investment philosophy has been designed to facilitate efficient implementation for each and every one of our clients, even in the most extreme of market conditions.

Over a decade ago when we built our investment management and trading platform, we had several goals in mind. Academic, evidence-based strategies were prominent in the construction of our investment philosophy, but we also wanted to focus on implementation, because we felt that there were a number of trading elements within our control.

We began our efforts by striving to keep internal fund expenses at reasonable levels, as numerous studies have demonstrated that doing so can enhance investor outcomes.  We also developed a disciplined rebalancing strategy. This strategy consists of reviewing each portfolio often and making a trading decision once a position exceeds its tolerance bands. Those tolerance bands themselves were based upon research into optimal rebalancing ranges, and featured robust Monte Carlo simulations.

From there, we then tackled tax loss harvesting. While many financial advisors only look to tax loss harvest at certain times of the year (if at all), there are often significant intra-year opportunities that such an approach would miss. Because of that, we developed a daily process which examines specific tax lots which meet our loss criteria. We then review and if a decision to trade is made we are able to generate losses that offset potential gains, reduce ordinary income, and set the foundation for potentially tax-free income during retirement.

Our implementation process also attempted to further reduce costs wherever possible by introducing commission free ETF’s whenever orders were too small to justify paying a mutual fund transaction cost.  And then we tied everything together with our asset location strategy. With asset location, we take your portfolio mix and within that we position higher expected return assets in tax-free accounts, lower expected return or tax-inefficient assets in tax-deferred accounts, and tax-efficient assets in your taxable accounts.

Over the years we have enhanced our trading platform by adding countless systems, thresholds, tolerances, rules, and algorithms in order to consistently and efficiently monitor portfolios and execute trades across our expanding client base.

I think it is safe to say all of those systems were tested during the volatile market environment we experienced as the COVID-19 humanitarian crisis unfolded. Below are the results of the accumulated efforts of our team of 6 traders for the 6-week period leading up to Thursday, March 26th:

In those 6 weeks we executed 82,206 transactions compared to 88,699 transactions for all of 2019.

Also during that time we traded a total of $1.625BB compared to $1.016BB in 2019.

In a one-week period we reallocated a total of $341MM into shorter term bonds as part of a strategic portfolio adjustment.

Netted against equity sales, we have added $154.4MM in equities to our clients’ portfolios through rebalancing during that 6 week period (buying stocks while they are on sale).

Also during that time we have realized $32.9MM in tax losses on over $200M in sales in 1,719 taxable accounts for an average tax loss harvesting amount of $19,139 per account.

I hope this serves as a reminder that in times of market volatility and uncertainty the team at Pure is actively looking for trading opportunities though rebalancing, tax loss harvesting, and asset location.  We have built systems to provide this value efficiently across our entire client base and are always striving to enhance the platform.

As always, should you have any questions about these strategies, what actions we have taken over the last several weeks, or how this may apply to you personally, please don’t hesitate to reach out to your advisor or any member of the team here at Pure.

Thank you,

Benjamin S. Littman, CFP®
Founding Member
Chief Investment Officer

Pure Financial Advisors, Inc.
A Registered Investment Advisor
3131 Camino Del Rio North, Suite #1550
San Diego, CA 92108
T | (619) 814-4100, Fax | (619) 814-4109
W | purefinancial.com

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