The only time one should consider changing their financial strategy, in our opinion, is if there is material change to one’s risk tolerance. This can come about in response to death of a family member, loss of a job, illness, or any other non market related event that causes the original goal to change. Following the original plan with the understanding of meeting periodically to review for changes typically leads to the most successful outcome for the client than changing investments.
The recent market correction in the last few weeks required many clients to reevaluate the risk in their profile. One of my clients was concerned about their potential downside exposure. We ran a stress test analysis using HiddenLevers to determine their downside potential of their retirement account. The client learned that they had a downside potential equal to a 56% loss in their portfolio. This would wipe out a decade of saving for retirement! We pivoted their investment strategy to use a core and satellite portfolio. By allocating 20% of their portfolio to our active management fund, we were able to reduce their downside risk substantially. Additionally, because of the non-corelated nature of the actively managed fund, we were able to increase their potential upside return by 100 bps without increasing their standard deviation of returns. We were able to build them a better performing portfolio with the same amount of risk using our actively managed fund.
As a business owner, it is crucial to have a solid financial strategy in place to ensure success and sustainability. However, market conditions can change unexpectedly, and as a financial advisor, it is part of our role to help clients adapt and pivot their strategies accordingly. One scenario where I had to pivot a client's financial strategy was during the economic downturn caused by the COVID-19 pandemic. My client had initially invested heavily in stocks and bonds before the market crash. This caused significant losses for them, and they were worried about their future financial stability. To address this issue, I first analyzed their current financial situation and assessed the impact of the market changes on their portfolio. It was clear that their previous strategy was no longer viable and needed to be adjusted to mitigate further losses. I then worked closely with my client to understand their risk tolerance, goals, and future financial plans. We discussed various options and came up with a new strategy that aligned with their revised objectives.