By Jacob B. Hensley, CPA, Financial Advisor
The world of investments can be highly intimidating. With seemingly infinite options paired with the unpredictability of the world today, it is easy to become overwhelmed trying to navigate it alone. Having a team taking charge of this task can reduce stress and ensure prudent moves are being made. When it comes to success in finances and life goals, it is crucial to mitigate risk where possible. Below are a couple investment strategies that can help to reduce risk in a portfolio and improve long-term results.
Client-Centered Investing. As a fiduciary, our mission is help clients achieve their life goals. Two of the main factors we use to determine investment choices are assessing what these goals are and understanding tolerance of risk. By starting with goals, a clear idea of the purpose behind clients' finances can be achieved. Next, risk tolerance provides an idea of our clients' comfort levels with the amount of risk they are willing to take to achieve a certain level of reward. Higher risk can lead to higher returns but also greater losses. Using a blend of goals and risk tolerance can provide more accuracy in how investments should be put to work for a specific investor.
Portfolio Rebalancing. There is a common expression out there that says, "buy low, sell high". Following this expression can increase the likelihood of producing steady gains over time. The problem with this is that no one knows when an investment will reach its peak or trough. Rebalancing of a portfolio is a natural way to mitigate some of this unknown. Think of a portfolio as a pie chart with different investment categories inside of it. When one piece begins to outgrow the others, then it is nearing the theoretical "high" side for that specific client's financial situation. With rebalancing, this is a trigger to sell that specific investment category. Inversely, when one piece shrinks, or loses value, it starts to head towards the "low" side. This is an indicator to buy more of that investment category. Regular rebalancing is a steady way to seek portfolio growth over time in a way that is fit for the client’s objectives.
Diversification. We understand the stock market is likely going to grow and retract over time. This up and down movement is called market risk. When trying to achieve steady returns, being heavily invested in market-based assets can lead to greater risk, particularly when in retirement and withdrawal years. Investing a strategic portion of a portfolio in diversifying items such as natural resources and real estate can lead to gains when the market is in a downturn.
Inflation is another significant risk that can affect a financial plan. Leased real estate is considered an effective way to combat inflation due to its ability to adjust prices quicker than many other sectors. A simplified example of this would be a hotel. With the ability to adjust room prices daily, its revenues and profitability can constantly be reacting to inflation and other economic factors.
Our belief at MCF is that we cannot predict the future, but we can prepare for it. Through the strategies above and the ongoing extensive research performed by our investment team, we believe we can help you achieve your goals by assessing and monitoring your unique portfolio. We look forward to meeting with you to display how your investments are mitigating risk and working for you.
IMPORTANT DISCLOSURE INFORMATION
MCF Advisors, LLC (“MCF”) is an SEC-registered investment adviser. Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by MCF), or any non-investment related content, made reference to directly or indirectly in this presentation will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this presentation serves as the receipt of, or as a substitute for, personalized investment advice from MCF. To the extent that a reader has any questions regarding the applicability of any specific issue discussed herein to his/her/its individual situation, he/she/it is encouraged to consult with the professional advisor of his/her/its choosing. MCF is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. A copy of MCF’s current written disclosure statement discussing our advisory services and fees is available upon request. If you are an MCF client, please remember to contact MCF in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing / evaluating / revising our previous recommendations and/or services.