Steven Evanson has a doctorate in statistics and behavioral sciences. As it turns out, such a combination has led to an unconventional approach to investment theory.

Now an advisor based in Carmel, Calif., the 61-year-old former clinical psychologist made a career switch more than 20 years ago to helping people put together investment portfolios. The basis for his strategy is a strong belief that nobody can forecast long-term economic and asset class movements.

"We don't trade or time markets once we're in positions for our clients," said Evanson. "Our major focus is for people to own a little bit of everything within their individual risk levels and specific financial situations."

He says studies show that the less you make changes, such passive approaches using index mutual funds over time will beat stock traders and the hefty costs associated with such a process.

It's a low-maintenance approach, Evanson says, that sports low turnover and low costs. His average charge for managing portfolios is around 0.10%, although for the firm's smaller-sized accounts of $1 million or less, it might reach twice that amount. "I really don't like charging more than 20 basis points," Evanson said.

Keeping costs low is critical to passive investing. And Evanson's a big believer in holding down costs. "A lot of people in my business charge 1% or more. The problem is that sucks up most of the advantages of using passive funds over active funds," he said. "The name of the game is to keep advisory costs, tax costs and fund costs as low as possible. Costs do matter."

Big On Style 

Evanson uses index funds from Vanguard. But he strongly recommends Dimensional Fund Advisors funds for stock investors. "Vanguard offers great funds, but they're index-based. DFA is constructing portfolios based on style factors, which isn't the same as having an index, which in a sense, is like a semi-momentum fund," Evanson said.

That difference in methodologies results in somewhat different portfolios in different asset classes. But he says that the biggest differences come in capturing value-styled stocks. "My preference is to equally weight equity asset classes," Evanson said. "None of the past data is strong enough to guarantee future results over the next 40 years. To me, you need to be soberly grasping the potential for loss."

In a typical portfolio, he might use 10 funds. For example, on the domestic side, Evanson prefers to hold the DFA U.S. Large Company Fund (DFLCX) with the DFA U.S. Large Cap Value Fund (DFLVX). While the first one is growth-oriented, the second adds value stocks and provides overseas exposure. He also likes to provide exposure for his clients to small-cap value; small-cap growth; and U.S. real estate investment trust funds.

For small-growth stock funds, Evanson likes to use the DFA U.S. Micro Cap Fund (DFSCX). But it's closed to new investors, so he goes with the DFA U.S. Small-Cap Fund (DFTSX) for those clients seeking access to small-cap growth stocks without positions in DFSCX.

"These are called building blocks that are inter-correlated to some degree. But they're still discrete enough to consider them a different investment meal, mixed together in different flavors," Evanson said.

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