History has demonstrated that markets normally compensate investors for bearing risk over time. However, we acknowledge that it may not always be a smooth ride. Risk and return are inextricably linked, so pursuing higher expected returns involves taking more market risk. It is not easy for investors to avoid the emotional pitfalls and behavioral biases in the midst of a market correction, but we can help you maintain perspective and make rational investment decisions consistent with your plan.
We are strong advocates for staying disciplined through the volatile stretches inherent in capital markets. We do not attempt to time markets, forecast market tops or bottoms, or speculate on “flavor-of-the-month” investment ideas. Instead, we make portfolio adjustments based on objective criteria that is measurable and observable over time. We look past short-term volatility, help our clients avoid common behavioral biases that could detract from returns, and strive to build resilient portfolios that win over time.
One reason that we have the fortitude to remain disciplined through market swings is due to our robust asset allocation process and commitment to risk management. Part of our risk management framework is evaluating the downside risk of a portfolio. As opposed to volatility, which measures the dispersion of historical returns for an asset, downside risk is how much we expect your portfolio to decline if we hit a recession. We view this as a better, more tangible way to frame the risk-reward tradeoff for our clients.