Articles May 13, 2025

Building Wealth Wisely: TFO’s Investment Strategy

By Chuck Carroll
Chief Investment Officer

Investing can often feel like navigating uncharted waters, filled with uncertainty, risk, and endless opinions on what strategies work best. At TFO Family Office Partners, we believe a disciplined, evidence-based approach is key to long-term success. Chuck Carroll, our Chief Investment Officer with over 30 years of experience, shares the guiding principles behind TFO’s investment philosophy. From understanding risk and return to embracing diversification and minimizing fees, these insights provide a framework for making informed investment decisions that align with your financial goals.

1. Risk and Return are Related

History tells us that stocks have generally outperformed bonds, particularly over longer holding periods. Unfortunately, that fact alone doesn’t tell us how to invest, as those incremental returns aren’t a “free lunch”.

Stocks have also exhibited greater volatility than bonds, with the global stock market experiencing a decline in roughly 1 out of 4 years.

Source: Dimensional Returns 3.0 Software. See important disclosures at the end of this blog post.

What’s the right mix of stocks and bonds for you? There’s no universal answer to that question but thinking about:

The purpose of your capital
Your time horizon
How you’d react to volatility

Keeping these three topics in mind can help you and your advisor build the right portfolio.

2. Combat Uncertainty by Diversifying

Some investors are surprised to learn that there’s no pattern to help predict which area of the market is going to outperform next. But that doesn’t stop them from making big bets and trying to win against the odds. A better antidote for the perpetual uncertainty of the markets is a well-diversified portfolio.

Although diversification is no guarantee of success, thoughtfully allocating capital across many different securities, sectors, and types of investments can help investors efficiently capture the returns that the markets provide so that your financial goals aren’t riding on a potentially misguided bet.

Annual Ranking of Asset Classes

Source: Dimensional Returns 3.0 Software. See important disclosures at the end of this blog post.

3. Taxes and Fees are a Drag

Most investors think successful investing is about whether they should get in or out of the market, what stocks to pick, or finding the next superstar fund manager.

Unfortunately, they often overlook two elements that appear simple but can be tremendously impactful on their wealth: Reducing investment manager fees and minimizing taxes. Studies* have shown that the old phrase “you get what you pay for” doesn’t apply in investing. Instead, there’s strong evidence of the opposite: Lower-fee strategies generally produce better results for their investors. Similarly, embracing tax-reduction techniques such as minimizing portfolio trading, being aware of holding periods when trading, and strategic tax loss harvesting can have a dramatic impact on wealth. After all, it’s not what you make that matters, it’s what you keep.

*Source: “What Worked for Fund Investors? Pinching Pennies and Letting Winners Run”. Morningstar.com, February 7, 2025 (https://www.morningstar.com/funds/what-worked-fund-investors-pinching-pennies-letting-winners-run)

A Hypothetical Example

See important disclosures at the end of this blog. The portfolios above each assume a gross-of-fee, pre-tax return of 10%. “High Fee” = 1.20% annually. “Low Fee” = 0.20% annually. “High Turnover” = 50% of annual gain realized. “Low Turnover” = 5% of annual gain realized. Tax rate of 26.3%.

4. Emphasize Academic Evidence

Old-school investors pride themselves on their supposed “feel” for the markets, and their hunches about what direction a stock might head. They might spend time reading company reports, or interviewing company management to try to form an opinion about the stock. But over the past few decades, academic research has played a powerful role in helping investors understand markets, and how to appropriately assess the odds of their investment decisions.

One important finding is that companies with certain characteristics, such as relative price (“value”), small capitalization (“size”) and high historical profits (“profitability), generally have higher expected returns than companies lacking these characteristics. While there’s no guarantee that past results will repeat, history seems to indicate that “tilting” a diversified stock portfolio toward companies with these attributes could potentially reward investors over the long-term.

Performance of Small/Value/Profitability “Tilted” Indexes vs. Broad Market Indexes

Source: DFA. Time periods shown are longest periods for which data is available. DFA’s index descriptions are available upon request. See important disclosures at the end of this document.

5. Embrace Discipline

The famous phrase “we have seen the enemy, and it is us”, is an unfortunate truth in investing. Staying the course with your investment strategy through market gyrations can be really challenging.

But gaining an understanding of market history and using it to shape our expectations can help us be more disciplined and avoid costly mistakes. For example, it might be surprising to learn that in most years the S&P 500 Index experiences a decline of more than 10% at some point in the year.

Despite those intra-year declines, the index has produced an average return of 13% in calendar years going back to 1980. Being disciplined becomes a little easier if we learn to expect stock market declines, and see them as a normal part of successful investing.

Data Source: Dimensional Returns 3.0. See important disclosures at the end of this document.

Important Disclosures
Advisory services are provided by TFO Family Office Partners(“TFO”). TFO is registered with the U.S. Securities and Exchange Commission (SEC) and only transacts business in the U.S. in states where it is properly notice filed or is excluded or exempted from registration requirements. Registration as an investment advisor does not constitute an endorsement of the firm by the SEC or any other securities regulator and does not mean the advisor has attained a particular level of skill or ability.

TFO is not engaged in the practice of law and any advice provided should not be construed as legal advice. The information discussed and presented herein is intended to serve as a basis for further discussion with your financial, legal, tax and/or accounting advisors. It is not a substitute for competent advice from these advisors.

Content should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change. Material presented is believed to be from reliable sources, however, we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your financial advisor prior to implementation.

The information contained herein is based upon certain assumptions, theories and principles that do not completely or accurately reflect your specific circumstances. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any securities or investment advisory services where such an offer would not be legal. Furthermore, this material may contain certain forward-looking statements that indicate future possibilities. Due to known and unknown risks, other uncertainties and factors, actual results may differ materially. As such, there is no guarantee that any views and opinions expressed herein will come to pass.

This presentation, as well as educational content, charts, tables, and all other information contained herein is protected by copyright and intellectual property laws and may not be altered, reproduced, distributed, sold, published, or edited at any time without the express, written consent of TFO. Information presented within may be copied and quoted in proper context, provided proper attribution is given to TFO.

All investment strategies have the potential for profit or loss. There can be no guarantee that investment goals will be achieved, and there can be no assurance that any specific investment or strategy will be profitable.
Different types of investments involve varying degrees of risk. Past performance may not be indicative of future results. No current or prospective client should assume that the future performance of any specific investment or strategy will be profitable or equal to past performance levels. All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions or withdrawals, and economic conditions may materially alter the performance of your portfolio.

Content should not be viewed as personalized investment advice. Market events and other factors may affect the reliability of the potential outcomes. Simulated growth is purely hypothetical and does not represent actual performance.

Asset allocation and diversification do not assure or guarantee better performance and cannot eliminate the risk of investment losses. There can be no assurances that a client’s portfolio will match or exceed any particular benchmark. Target asset allocations may differ from illustrations due to market conditions and investment decisions. There can be no guarantee that target allocations will be achieved. Target cash flow and target long-term returns are gross of fees and do not show the impact of advisory fees on those returns. Projections are based on assumptions that may not come to pass.

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