The number one rule of investing is DON’T LOSE MONEY. The reason for this is very simple, as any percentage loss of principle requires a larger percentage gain to break even. If a portfolio losses 25% of its value it takes a 34% return to get back to even. The larger the loss the larger the required gain. Having managed money through multiple recessions we are keenly aware of how economic changes can negatively affect a portfolio. Contrary to popular investment theory, massive diversification DOES NOT negate the potential of loss. An investor is much better served by investing in the right assets at the right time.
No matter the size of the balance sheet or whether the investor is an individual or institution, all investors have the same investment options. There are five different asset classes available for investing: cash, bonds, real estate, stocks, and commodities. There are thousands of securities inside each of those classes and our job is to find the best within each, but owning all simultaneously IS NOT the proper way to invest as whatever asset class that is performing best will be offset by the assets underperforming. In addition, certain assets are guaranteed to lose money at some point within an economic cycle on a real return basis as inflation runs at 3% annually. Successful investing requires consistent real return throughout the entire cycle.
The validity of any investment approach is proven over time by its performance. At Warren Capital Group, we prefer to look at performance over an entire economic cycle. Although large gains can be made when the economy is flourishing, being able to protect those gains during difficult periods is equally important. While our investment strategies have proven to be effective at both, we continuously monitor and evaluate investment tactics to further our ability to accomplish our primary objectives: building capital and protecting wealth.
Wealth can be created or inherited. Either way, wealth often results from the substantial growth of an individual asset over a long period of time. Be it a private business, public equity or real estate, an investor’s net worth is often concentrated in one or two large assets and we must deal with that risk.
There are multiple ways to offset such concentration, be it through hedging, insurance or diversification. But identifying where a client is exposed is first required. Every investor should complete a personal balance to identify how assets are distributed within their net worth and update it with frequency. Once we identify areas of concern we have established tactics that can reduce the inherent risk of concentrated assets.
There are multiple aspects to managing wealth and they require a consistent, disciplined approach. Our proprietary wealth management practice has discipline at its core and is designed to help our clients grow and protect their net worth. With each client, we address their:
Investment Goals –
Who will benefit from the wealth that has accumulated?
Current Asset Base –
Where are the assets now and is that structure correct?
Risk Tolerance –
How much volatility is the client capable of handling throughout an economic cycle?
Liability Exposure –
Is there debt on the client’s balance sheet and is it appropriate?
Intended Legacy –
Will your core values transcend generations?
Family Governance and Education –
Will children and other beneficiaries outlive their inheritance and how can we negate that risk if so?
Once we establish an individualized plan that addresses these subjects we use our experience in asset management, mortgages and lending, taxes, insurance, and estate planning in order to develop actionable strategies that accomplish our clients’ objectives.