- October 17, 2020
- Posted by: Stratford Team
- Category: blog
Start Exploring Wealth Management With Us
While the business world spins around and we can’t be sure of what the future might hold, we still need to make investment decisions about the money that we have. At Stratford Management, we provide quality and diverse investment solutions for our clients, both long- and short-term. Reputation and credibility matter. That’s why we endeavor to help our clients understand what they are investing in and why. A basic grasp of portfolio management strategy and risk management is useful when decisions have to be made quickly, especially in response to periodic market shocks.
What Is A Good Investment?
People make investments to improve their future. They invest their capital in a security so that it will increase in value, generate income and/or preserve their wealth. It’s entrusting money with a company or a government. With any investment comes an element of risk. Investment risk differs depending on the type of investment. There are different types of risk, and different levels of risk. As a general rule, the higher expected return, the higher level of risk. By the same token, the lower the risk, the lower the expected return.
In addition to measuring the risk of each individual security, one must consider the credibility of a bank or investment company. Understanding investment fundamentals gives one more confidence in differentiating between a good investment and a scam. There are many types of investment risk beyond capital losses. Inflation risk can have a significant impact on the future value of one’s assets. Investor’s need to have a long-term investment plan, and to keep track of where they are with respect to their objectives. At Stratford Management, we work closely with each individual client to ensure they reach their goals in life.
Investment Risk Factors
There are many different types of investment risks that Stratford Management factors into portfolio management guidance:
- Company-Specific Risk is risk that comes from the company itself. When you invest in the shares of a company, you are at risk of capital losses if the company fails, suffers damages, losses or poor management.
- Interest-Rate Risk comes from the fact that interest rates change. Changes in interest rates affect various investments differently, and also have an impact on certain industries and overall stock market behavior.
- Currency Risk is due to fluctuations in foreign exchange rates. It can be affected by central bank actions affecting interest rates and liquidity, by changes in government, and many other geo-political factors. Currency risk affects the value of one’s cash positions. It’s also an important consideration when investing in shares of multinational corporations.
- Credit Risk refers to the potential of a loss because of a borrower’s failure to repay debt or make interest payments. It’s the risk to a lender or bond-holder that they may not receive money owed as principal or interest. Companies that engage in accounting slight-of-hand to hide cash flow problems are perpetuating a scam. This is why it’s important to work with investment professionals like the team at Stratford Management, who are experienced at corporate due diligence and can read between the lines of a stock’s financial reports.
Choosing the right company and investment adviser is another aspect of risk management. It goes without saying one wants to avoid a scam, but it’s also important to find professionals that you’re comfortable working with. Risk management involves tradeoffs based on many aspects of an investor’s personal life. Effective financial guidance depends on open communication. Age, family, business plans, retirement plans all factor into investment decisions.
In general, the younger an investor is, the more risk they can assume. The idea is that because they have more time to make up potential losses, they can afford to take higher risks in anticipation of higher rewards. Clients approaching retirement have less time to make up for losses through income and tend to be more conservative. Generalizations are not always appropriate, though. And that’s where personal relationships and communication play a big role. For example, if you’re saving for a down payment on your first home, part of an investment portfolio will be short-term, conservative and liquid. A retired securities lawyer may enjoy engaging in active trading, by contrast.
Diversification is important for every investor, regardless of age or any other factor in life. It’s never good to put all your eggs in one basket. Diversification protects against capital risk and company risk. It minimizes portfolio volatility, market and economic fluctuation. Properly employed, it also maximizes growth without taking on additional risk. It can even protect from interest rate risk, since changes in rates can affect certain market sectors in opposite ways. Diversification also has limits – overdiversification incurs additional fees and charges that after a point provide no marginal benefit. Finding the right balance is key to effective wealth management and another reason to work with experienced professionals like the team at Stratford Management.
At Stratford Management, our goal is to ensure that each and every one of our clients achieves their goals. Effective wealth management involves effective decision making and risk tradeoffs. Helping clients understand the how and the why of investment decision-making makes the process easier and avoids unnecessary stress. It also allows us to provide professional objectivity when clients are faced with personal stress, market volatility and the inevitable uncertainties of a well-lived life. We help clients plan, so their portfolios grow, and they can prosper.