Step Three: Avoiding Wild Roller Coaster Rides
In 1990, the Nobel Prize for economics was awarded for research that revealed a unique relationship among investment risk, reward and diversification. Known as "Modern Portfolio Theory," this research forms an integral part of our investment approach. By actively managing the exposure to domestic and international market capitalization (large cap, mid cap and small cap), investment style (growth vs. value) and market sectors (financial, health care, technology, etc.), we optimize performance while adhering to the risk parameters established for each client.
If you think of investing as a roller coaster ride — and it often can be — the application of a diversified strategy utilizing the basic tenets of Modern Portfolio Theory can moderate the effects of sudden and dizzying drops in the market. This is particularly critical for clients who are retired, or who are nearing retirement. Also critical to our past success has been the inclusion of "market neutral" and "hedged" strategies along with non-correlated sectors such as commodities, global real estate, etc.
