Eton Advisors Investment Philosophy

is built around our Goals-Based approach to asset allocation.

As opposed to the oft-used approach of Mean Value Optimization—wherein the primary goal is maximizing portfolio return per unit risk—the chief objective of our goals-based approach is to maximize the probability of achieving the clients' specific goals over multiple generations. The optimal portfolio for funding a given goal is that which minimizes the cost of funding the goal at the desired confidence level at the appropriate time horizon.

  • dictating that all of our investment portfolios be custom tailored rather than model driven.
  • In measuring returns and thereby progress toward goal achievement, the focus should be on compound returns over time rather than average or single-year returns.
  • The investor's goals dictate the level of risk appropriate to any portfolio, but risk in excess of what is necessary to achieve those goals is typically uncompensated and should generally be avoided.
  • While many investment advisors utilize a "passive only" or "active only" approach to investing, the dynamic nature of markets and the immutable nature of particular goals demand that Eton be more adaptable. We believe that the choice between active and passive vehicles should be made in the context of a larger risk budgeting process, wherein the probability for manager outperformance (i.e., alpha) is weighed against the costs in added fees and the potential for underperformance.

Goals-based framework

  • We help each family identify risk tolerances based on its unique circumstances; the nature and size of the family's various financial goals; the priority of those goals relative to each other; and the respective time horizon associated with each goal. Mental accounting and categorization of goals aid families in understanding multiple risk tolerances and in making portfolio decisions.
  • The goal-driven framework begins with a detailed analysis of client goals, wherein goals are identified, quantified, and prioritized. Extensive cash flow analysis is conducted to support these processes.
  • Goals are parsed into three categories based on their priority and the degree of certainty required: Needs & Obligations, Priorities & Expectations, and Desires & Aspirations.
  • Within the client's overall portfolio, sub-portfolios are created specifically to fund each layer of goals. Higher levels of risk are permitted in funding the Priorities & Expectations and Desires & Aspirations-level goals, while the Needs & Obligations-level goals are funded with relatively low risk assets.

Goals-Based Framework to Investing

Asset allocation should reflect the fact that each investor has multiple goals with differing levels of priority, risk tolerance, and time horizon.

Goals-Based Approach

Aggregating Multi-Generational Family Goals