Our Philosophy on Risk and Opportunity

There are many parallels between investing and life in general. One of the most clear is the relationship between risk and opportunity. It is a basic law of economics and financial management that every form of risk control or risk reduction costs money. Whether you use bonds, cash or are simply buying insurance on your home, each of these risk reducers cost money or opportunity. Opportunity is just another way of saying, "money you could have earned", or spent elsewhere, in the context of financial management. We strongly believe in combining opportunity, by participation in the markets, with some level of mitigation or protection.

There are two key reasons to control risk in your portfolio. First, it is a lot harder to earn money back once lost. If you lose 20% of your money, you have to make 25% just to get back to even. This leads to the second reason which is lost time. While your portfolio is spending months or years getting back to even, you are losing time to build your financial foundation as you approach retirement. These two characteristics of investing can be instrumental in achieving your retirement goals.

Another perspective on risk taking is the less control you have over a situation, the less risk you should take. The more input and control you have, the more risk maybe appropriate to take. The direction of the markets and the returns on particular stocks and bonds is something you have no control over so it should be an area where you also reduce the risk level. Whereas, in running your own business, where you have a great deal of input and control you might take greater risks.

The right level and style of risk mitigation or protection for your portfolio is what we help determine and maintain.