Diversification & Risk Reduction Strategies

March 05, 2020

Marc Scudillo, Managing Director, and Steve Wang, Chief Investment Analyst, of EisnerAmper's Wealth Management and Corporate Benefits discuss the Quarter 1 Investment Committee Meeting. The second segment covers how diversification and other risk reduction strategies can help reduce portfolio risk-volatility, thereby helping clients achieve their financial goals.

This video was recorded on February 25, 2020. Update to follow. View the full video here.


Transcript

Marc Scudillo: It's important to note that although the stock market, I'm going to be speaking quotes with the stock market because many people think of the stock market as their portfolio, but the reality is when you have a diversified strategy, it goes beyond just the S&P 500 Index.
Steve Wang:That is correct.

Marc Scudillo: So a balanced type portfolio, we saw last year performed in line with something close to 15 to 17% rates of returns, which is still exceptional with that amount of risk reduction within a portfolio in any given year.
Steve Wang: That's right.
Marc Scudillo: And so, what are some of the additional items that we added in 2019, and why?
Steve Wang:For a traditional portfolio, we have long-only stock managers and the fixed income managers and like Marc, you just said, the fourth quarter was a very strong quarter. Most of our long-only portfolio has downed about four to 5% in range and for the entire 2019, our portfolio has done about 17 to 18% in a given range. However, during 2019, we see the stock market continue to go higher and higher. That's why we are starting to talk to our clients and also get access to our institutional partner to do further research on some alternative investment strategies, trying to put a seatbelt around the traditional equity and fixed income portfolio.
Marc Scudillo:Sure. So that risk reduction strategy and those risk reduction strategies were designed so that they could be some are liquid and have the opportunity for risk reductions for the benefit of our clients, as well as we had some that were a little bit more longer term but gave some protection on the downside along the way and we started introducing those over the last few quarters because of how high the markets got. But not just necessarily because of how the markets were, but also we're seeing that our clients' part of the goal is to achieve what's most important to them with the least amount of risk.
Steve Wang:That is correct.
Marc Scudillo:So we're seeing as part of the planning, the integration of the planning with the investments is that the planning is letting us know that we have a high probability of reaching our clients' goals with lower risk. Why wouldn't we try to lower the risk along the way, because many clients would like to do that.
Steve Wang:That's right.
Marc Scudillo:So, a brief example though of how the alternative investments had actually provided some protection.
Steve Wang:Sure.
Marc Scudillo:We had mentioned during the investment committee, last week, the market went down about 1.4%.
Steve Wang:That's right.
Marc Scudillo: At the same point in time, we were able to recognize that some of these alternative investments, they actually had positive rates of returns. That's the diversification that we're looking for in adding to our clients' portfolio, non-correlated type assets to the investments.

About Marc Scudillo

Marc Scudillo provides financial planning, investment and wealth preservation protection services to both individuals and corporations.


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