If you've ever read the accounts of those brave souls who've successfully climbed a mountain and lived to tell the tale, it's a remarkable achievement. The challenges they faced to get to the top, the planning and training it took to get there, and the thrill they experienced scaling the heights rank among the marvels of human achievement.
That being said, we don't often hear about how they managed to get back down safely. Successful long-term investment strategies are much like mountain climbing; it is equally important to plan for the journey upward as it is to plan a safe journey back down.
"As difficult as it is to scale Mt. Everest, coming back down from the world's tallest peak is far more deadly. Over 56% succumbed to their descent. It is actually a common rule in climbing that more people die coming down than going up."
Jordan Lite- Scientific American 12-10-08
Think about that in terms of financial planning and wealth management. You've done a great job of accumulating and ascending that proverbial mountain. But now you must descend, and you must protect your assets and manage downside risk. It's an incomplete strategy to plan for a climb and then ignore preparations for a safe glide path down.
Although investing in the stock market isn't a potential life or death scenario, as scaling a mountain can be, there is wisdom in thinking like a climber when considering your investments.
It's all in the planning.
At Vineyard Global Advisors, we believe in having a plan for the way up, but more importantly, we are over-prepared for the way down, sideways, and back up again. Partnering with the right financial advisor is like having a Sherpa or guide on your financial journey, helping you define your risk tolerance so you can invest and put money in the right strategies.
When we build out a financial plan, we build it based on two scenarios: success probabilities and downside volatility. What downside volatility can you withstand and still have at least a 75% probability of success? That downside volatility budget tells us how much turbulence you can handle and achieve your goals.
Strategies can vary greatly, from Enhanced S&P 500 to ETF Advantage. Pairing the right strategies with your overall investment goals is essential to a successful long-term investment strategy.
Here are a few questions to ask yourself:
Long-term investment strategies take extreme conditions into account. Like a climber, who must consider the weather, equipment, and route to survive, investors also have to overcome their emotions when reacting to market movement to ensure future results. This involves risk management.
Risk management is a step that far too many investors skip.
At VGA, we believe a long-term risk management plan considers volatility as an inevitable component of the investment landscape. So, we have strategic plans in place for when the market moves . Steadier returns over time help keep our clients on track toward meeting their personal financial goals. Knowing there is a plan to address risk gives them peace of mind, helping them avoid costly, emotionally driven decisions when volatility strikes.
Climbing can be a safe recreation - if you take the proper precautions. Those who take the most extreme risks are usually the ones we hear about on the news. Investing is often viewed as risky - but it too can be made safer by taking suitable precautions:
Just because you can't see the storm clouds on the horizon doesn't mean they aren't on their way. Market specialists can accurately predict storms in investment markets long before they become visible. Yet, almost more important than the ability to divine markets and predict storms is the ability to prepare for those patterns and implement a protection plan.
Proper risk management comes with knowing that storms will come, an inevitable part of the journey, and investors can put the appropriate protections in place to guard against downside risk. Over time, keeping emotion out of investing and replacing it with strategy is one of the tenets of steadier returns.
All our strategies are risk managed. There's a component built into every portfolio that flexes. And when we are playing max offense, that can flex to add more equity exposure. When the odds of success are not on the investor's side, we will take a defensive stance and increase that hedge. We limit the downside within the portfolio, all while leaving the core quiet and passive.
Too many people panic when the market declines and sell everything. The key to preserving wealth is, at times of extreme on the high side, is you must have the discipline to know when to add some hedging to a portfolio. If markets increase, you're just going to give up a little of the upside rather than selling everything for short-term gain.
But if you sell everything, you create a loss through taxes. So, we believe in keeping the tax impact extremely low by taking a small wedge and using that to adjust the equity exposure of a portfolio.
This is precisely how you should view your investment journey - with adequate time horizons and long-term strategies that will help you reach your goals while protecting you from risk.
Famed Everest mountaineer Edmund Hillary said, "the complete climb of a mountain is reaching the summit and getting safely to the bottom again." It's not just the climb but the round trip that matters in the end.
The mountaineer knows that there is always the chance of an unexpected storm. Therefore, they must decide to stay and take the risk by continuing to climb or to go, thus protecting their life and returning to try again later once the storm has passed.
Many investors are in the same situation, especially now that market volatility is more prevalent. Deciding to stay in a favored investment while risking a more prolonged fall or deciding to leave a position to protect your gains is difficult to determine on your own.
Consider an alternative option here, one that comes with evidence. For example, there is statistical proof that climbers who find a team to make decisions with and climb with have a far higher safety record than those who go it alone.
Find a team of experts to help you navigate and make rational financial decisions. Vineyard Global Advisors employs informed risk management:
"The way risk is handled can substantially impact an investor's ultimate success. Therefore, our approach for all Vineyard strategies involves applying layers of protection as needed in response to changing market conditions to provide the most protection during times of significant market deterioration."
Learn more about Vineyard Global Advisors' long-term investment strategies.
