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Lexington FAQs

 

What is the role of risk in investing?
Risk and reward are the yin and yang of investing. The key is to find the proper balance and that’s different for each individual.


Does Lexington try to increase performance by market timing?
Absolutely not. Decades of research shows that market timing does not work and hurts performance. Market timing often adds expenses and results in increased taxes.


Do you recommend international funds?
We believe that foreign stock and bond exposure can help increase returns and lower overall portfolio risk. International stock markets represent nearly half of the world stock market value and include the fastest growing markets. A key tenet of modern portfolio theory is that a properly diversified portfolio should have a variety of asset classes that don’t move together all the time. Including international funds improves diversification. Notice in the following world market breakdown that the US market is slightly less than half of the total world market.

World Market Breakdown


What is the “Efficient Market Theory”?
The efficient market (EMT) theory holds that stocks are always correctly priced since everything that is publicly known about the stock is reflected in its price. The clear implication of the theory is that investors are much better served buying large groups of stocks rather than selecting individual securities. There are numerous readings available, by the principal originator of EMT, Eugene Fama.


Why should I hire an investment advisor?
The average individual investor vastly underperforms the market. With an investment advisor and a disciplined process, long-term performance should improve. For example an article in the Journal of Finance found that a typical individual investor underperforms the market by as much 3.7%.


Can I beat the market?
It’s hard for investors to accept, but decades of research have shown that the stock and bond markets are highly efficient. Over the long run, few investors can outperform the market. Taking into account fees in mutual funds and other costs, it’s a nearly impossible task. Recognizing this, theorists such as Charles Ellis of Greenwich Research and Princeton economist Burton Markiel have outlined effective strategies that investors can use to make these forces work for the investor.


How are you compensated?
We are compensated exclusively from low cost, flat quarterly fees. We do not receive any commissions from transactions (e.g. from fund). As a fiduciary, we only act in our client’s interest.


Why are Your fees so reasonable?
Our streamlined business model allows us to deliver the highest quality investment advice and charge a very reasonable, flat fee. For example, instead of investing in sales and marketing efforts, we grow our business by word-of-mouth referrals, by working closely with accountants and estate planners, and providing exceptional value to clients. In addition, we outsource our non-investment work (back-office operations and compliance efforts) to Partnervest Financial Group. To further contain expenses, we augment our decades of investment experience with software automation tools to help build appropriate asset allocations.


How do I get started?
In our initial consultations, we will outline our approach. Once you determine that Lexington offers the sound investment advice you’re looking for, we will have more in-depth conversations to examine your full financial situation. Together we will develop an investment policy statement and a custom asset allocation, which Lexington will implement and monitor. Lexington will help you open new accounts as needed and transfer assets to these accounts.


What do I do with my current holdings?
Lexington will analyze your existing portfolio and will propose a reallocation consistent with our investing philosophy. While it is often in the client’s best interest for us to manage their entire portfolio, we will in any case recommend a portfolio that considers all of your assets. For clients with low cost basis securities in a taxable account, we would work with you to implement a new allocation that is sensitive to your tax situation.


How often does Lexington rebalance my account?
We rebalance your allocations to remain within the risk tolerances specified in the investment policy statement. A number of studies have found that a rebalancing frequency of once a year generally is most appropriate. But rebalancing will only occur when the portfolio shifts beyond the risk tolerances or your personal situation changes.


When would Lexington change my allocation?
As your financial situation and investment objectives change, we would suggest changing your allocation. For example, as you get older, we would normally increase your bond holdings to reduce the volatility of your portfolio.


Do you manage taxable accounts differently than retirement accounts?
Investment decisions need to take into account tax implications as well as the other important factors considered in the policy statement. Our overriding consideration is to maximize after tax investment returns consistent with the appropriate risk profile.


Does Lexington also manage retirement accounts (IRA, 401k)?
Absolutely, Lexington can and should manage taxable and non taxable accounts so as to create a unified portfolio. Lexington incorporates all aspects of your investments into a comprehensive strategy. If you are under an employer plan, we would take that into account. With custodians such as Schwab, we can roll over your currents IRAs.


Does Lexington have discretionary trading authority?
Most clients prefer that Lexington has discretionary trading authority. We will work together with you to determine an initial asset allocation and discuss any major rebalancing.


How often will I get reports?
We produce a portfolio report quarterly. In addition, your custodian will send out monthly statements and trade confirmation and provide Internet access to your account.


How do you collect fees?
Lexington automatically withdraws our management fee at the end of each quarter.


Is there a charge for an initial consultation?
No, there is no charge until you become a client. Only by getting to know you and your unique financial situation can both parties determine if there is a fit.


Is there a cost to terminate the advisory contract?
Both Lexington and the client may terminate the advisory contract at any time, for any reason without any termination cost.


Are the funds in my account safe?
Lexington does not have access to the client’s funds; only the client has such access. Client funds remain at all times at the custodian, generally Schwab Institutional.


Who is your preferred custodian?
Schwab Institutional is the custodian of choice because of their capabilities, service and commitment to quality. They also have low trading costs and continuously improve their technology. However, we periodically review the capabilities of other custodians. Through our back-office partner, we can accommodate a wide choice of custodians.


What services does Schwab Institutional perform?
Schwab Institutional is part of Charles Schwab & Co. Clients will have access to Schwab’s complete menu of choices.


Are investment advisory fees deductible?
Advisory fees paid are normally deductible. Clients should consult their tax accountant to verify that they can deduct such fees.


What is a Registered Investment Advisor?
Fee-based firms that manage client’s portfolios are required to register either with the SEC or with the states where they conduct business. We can currently provide investment advice in New York and California and can service clients in other states as well as needed.


How long has Lexington been in business?
Lexington Avenue Capital management has been in business since 2001 and became a registered investment advisor in 2003.


Are client references available?
We would be happy to provide client references.


How does Lexington ensure my privacy and confidentiality?
Lexington is a fiduciary and, as such, has strict privacy and confidentiality policies. Moreover, in conjunction with our technology partners, we have safeguards in place to prevent data being compromised.


Why should I let an investment advisor manage my portfolio?
Investment advisors spend full-time working on their clients’ financial future. By taking advantage of the latest research and superior products and bringing discipline and detachment to the process, they can improve an investor’s results over time.


How do Lexington’s portfolios compare to balanced funds from firms like Fidelity?
Many firms provide off the shelf products such as balanced funds or targeted portfolios. These are good products. We believe, however, that everyone has unique considerations and do best when their investment portfolio takes these into account. No one disputes that a custom made suit fits and looks better.


Is Lexington’s passive investing style tax-efficient?
Passive investing, by its very nature is tax efficient, with its low portfolio turnover. In addition, Dimensional has a number of funds that are specifically designed for tax efficiency. For accounts over $25 million, Dimensional provides separately managed accounts that realize additional tax efficiencies.


What is standard deviation?
Standard deviation is a measure of the dispersion of a set of data around its mean. The more spread apart the data, the higher the deviation. In finance, standard deviation is a measure of the volatility of returns. In a normal distribution, two-thirds of the returns are plus or minus 8 percent – one unit of standard deviation.

Standard Deviation