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Q: I have always been a risk taker, positioning both my private and public investments aggressively…but lately I have questioned this approach. What do you recommend to your clients?

A new client recently asked us the above question, after having been aggressively positioned for years and not having much to show for it.

Typical industry advice guides clients to take on as much risk as tolerable, assessing the level with qualifying questions such as, “how low would your portfolio have to go before you would cry uncle?”

However, an appropriate investment profile should always be personalized, versus a one-size-fits-all strategy.

Personalized Strategies

At LGA, we begin by evaluating the following criteria:

  • Are you a corporate employee or private business owner / investor?
  • Are you in the wealth creation or wealth preservation stage of life?

For the corporate employee in a wealth creation stage of life, we feel it appropriate to take the standard industry approach.

Our client’s job provides conservative growth over the years, while their LGA savings & investment portfolio is positioned more aggressively for growth.

If this corporate client successfully generates and saves good money over his/her career, he/she will reach the wealth preservation stage at some point.

Regardless of one’s risk tolerance, the better question to ask at this point is, “What is the least amount of risk needed to achieve my retirement and legacy goals?”

Unfortunately, many retirees never have this discussion with their advisor, waking up one day to an overly aggressive portfolio that has declined dramatically and negatively impacted their hopes and dreams.

This risk adjustment conversion should be proactively anticipated and discussed between client and advisor, optimally working from a financial plan.

Q: How about entrepreneurs?

For risk-taking entrepreneurs, there are large opportunities to generate wealth from their businesses.

As you might imagine, many often tell us they are aggressive by nature, and would like to aggressively position their public investments as well.

Is that the best choice?

At LGA, we believe these clients should counterbalance their aggressive private endeavors with a conservative and liquid public investment portfolio.

Entrepreneurs tend to have large windfalls during economic upturns, contributing large chunks of savings to their public investments near peaks.

They also tend to start new ventures (e.g. buy a business on the cheap) during economic downturns, requiring money from their public portfolios after markets have declined.

If their public investments are aggressively positioned, they end up buying high and selling low.

However, conservative portfolios, allow for contributions and withdrawals at more optimal valuation levels (see Exhibit I below).

Additionally, with greater opportunity there may be greater risk of loss, and having a stable portfolio can be invaluable.  Finally, there can be years in between investment and payoff where liquidity is paramount.

Don’t suffer from one-size-fits-all mentality!

As always, we are available to discuss your specific situation.  Additionally, we are happy to offer a complimentary investment review for your family members, close friends, or business associates that may want a second look at their situation.