Understanding Risk
Risk Comes in Three Forms
1.
The Risk You're Personally Comfortable With
2.
The Risk Present In the Market
3.
The actual Risk in your portfolio and each of its investments
We use specialized tools to assess all three, so we can align your plan with the right level of risk - for you.
The first step.
Define risk. To me, risk doesn’t mean loss—it means fluctuation. Fluctuations in value are normal and unavoidable, and they don’t have to derail your long-term goals.
Of course, a decline in value could become a loss if it never recovered in value, or if you abandoned your plan and sold while it was down before it had the opportunity to recover.
The key is understanding how much fluctuation you’re comfortable with—how much up-and-down movement you can tolerate and still remain committed to your plan. Our risk assessment process will capture your tolerance in a way you may not have been able to articulate in the past.
We believe in taking reasonable risks when the risks are reasonable.
“Reasonable risk” means we do not like extremes. Cryptocurrency, for example. Some investment ideas would never pass the “prudent man” guideline. They’re just “too risky,” at least they are for us.
There are times when the markets are too high. Or maybe an individual security has reached undesirable heights. There are times when you should take less risk than normal. If the risks are unreasonable, then we are willing to not be fully invested.
Buy and Review
An old Wall Street adage says that “it’s time in the market, not timing the market.” While we agree that patience is a necessary virtue in investing, we do NOT believe in buy and hold. We believe in buying and putting that purchase decision under further review. As Ned Davis points out in his book, Being Right or Making Money, even the brightest minds in the business sometimes buy a stock that does not act like they thought it would. When that happens, you may need to be humble, admit the mistake, and move on. That’s not timing the market. That’s wisdom.
Management Discipline
Through our relationship with Sowell Management, we have access to hundreds of investment managers. The ones we choose to work with have a data-driven discipline that dictates what to buy, what to sell, what to hold, and what to avoid. When they buy a security, they have an exit plan.
Understanding YOU
You are the most important component of our investment philosophy. First, we listen. Then, we strive to match you with the risk (fluctuation) level that you can stay with and match you with the investment strategy that best fits you.
Understanding you shapes everything we build for you. Are there values to which you hold fast? Do you have any restrictions – securities you want us to avoid? What overall goals would you like to accomplish? Anything specific, with a specific time frame?
When we spend this much time and effort on you, you may find yourself feeling better than you ever have about who you are, where you want to be, and how you’re going to get there.