RiskFirst® Principles

We Believe a Good Defense Is a Good Offense

The most problematic risk for an individual investor: drawdown

Words like “conservative”, “moderate”, or “aggressive” may not mean much to an investor when evaluating risk tolerance. Instead, the most important risk to individual investors is the loss of capital, measured by peak-to-trough drawdown. Managing drawdown within predefined limits that everyone understands keeps investors on track toward their financial goals.

We Recognize Relativity of Time

Unlike institutions, individuals invest on a limited time horizon

Traditional buy-and-hold asset allocation strategies, such as the common 60% stocks and 40% bonds portfolio, were originally built for large institutions that have “infinite” time horizons like pension plans and endowments. However, individual investors don’t have infinite time horizons. In fact, dramatic or large drawdowns in investments can have far-reaching consequences. While institutions can continue to hold their positions during market downturns and may be able to contribute more capital, individual investors – especially retirees – may be reliant on withdrawals of capital to support their lifestyle. For many individuals, a loss outside their risk tolerance may mean an impactful change to their financial plan.

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We Trust Physics

We guarantee investors cannot travel back in time

Performance is an uncontrollable variable. Yet the industry always focuses on backward-looking historical performance and track records. Unfortunately, investors can never have the performance that already occurred. Thus, when their actual performance differs from their expectations based on past returns, they often make emotion-driven decisions such as chasing returns at market highs or selling in fear near market bottoms. Instead of focusing on the past, we manage based on drawdown risk – why?

  • Maximum drawdown risk is a variable that can be effectively managed.
  • Drawdown risk budgeting can be achieved with a high degree of confidence.

We Overcome Industry Inertia

We deconstruct market reality to engineer a stronger investment foundation

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