Why is fee-only the best way to invest?

Short answer: it eliminates conflicts of interest. The fee-only system guarantees that the adviser will receive compensation from no source other than client fees. Other ways to invest (performance fees, brokerage houses, affiliated managers, etc.), include incentives for your investment manager that will conflict with your interests. Most managers will push products with which they earn higher commissions, trade more actively, or take on too much risk. Liberty Hill's only incentive is to keep you happy - by achieving returns that are commensurate with your appetite for risk.

What is your view on mutual funds?

A mutual fund is a pool of money belonging to multiple parties invested in securities (usually stocks or bonds). Conceived to assist small investors, or people who do not want to buy individual stocks, funds allow one manager to handle thousands of people's money simultaneously. Each fund has a goal. The goal could be to invest in a type of security: for example, there are growth funds for which the fund manager buys expensive stocks with growth potential; or income funds, where the manager purchases stocks or bonds that pay high dividends, or high yields. Alternatively, the goal can be to invest in a sector of the market, such as technology or energy, or an index, such as the S&P500. The shareholders participate in the fund's gains, losses, income, and expenses in proportion to their investment.

Bottom line: Liberty Hill believes that funds are a terrible investment and avoids them almost completely. Why? Funds offer poor value fueled by over-diversification, hyperactivity, and significant fees often hidden from the investor. According to an article in the March 17, 2004 Wall Street Journal entitled "Deciphering Funds' Hidden Costs," a study found that brokerage commissions on trading within the fund can more than double the cost of owning fund shares - and that did not include "soft dollar" costs. These costs exist even beyond the management fee, which can be substantial. Liberty Hill has on file numerous articles from Forbes, The Economist, and other publications that clearly show the significant deficiencies that plague mutual funds. Additionally, your risk profile is unique, and your investment portfolio should be as well.

Other than fees, the major cause of lackluster mutual fund returns is the current fund focus on marketing to the exclusion of a focus on performance.  Fund managers constantly create flashy new ideas to get attention; consequently, there are tens of thousands of funds.  Indeed, some funds do perform well, but the vast majority under-perform the S&P 500.

One exception are funds that focus on a country, where picking individual stocks would be difficult due to a lack of access or information. If the investment adviser believed a country could see significant growth, these funds would be a viable option.

What are your core guiding principles when investing?

This answer could be long and complicated, but basically Liberty Hill has two tenets: "market-beating returns are the product of research and discipline" and "there is no free lunch." Clients, friends, and family constantly ask investment advisers about hot investment opportunities - hot tips heard on TV, from friends, etc.  Rejoinder: something that sounds too good to be true more than likely is.  An investor will make money in the stock market over time by buying above-average companies and holding them.  It is this discipline that earns Liberty Hill its fees.

There is a big difference between investing and speculating. Liberty Hill does not recommend or practice speculating (short term bets) on the markets - though it can be very tempting. Study after study has shown that, on-average, people who invest the same amount of money regularly (say, each month), and adhere to a buy-and-hold strategy outperform all other investors.