New Paradigm In Investing Requires Fresh Approach For RIAs


A combination of global volatility, increasing life expectancy and the rising sophistication of the individual investors has led to a new paradigm in wealth management.

Diversification within a portfolio isn’t enough. Clients today require a diversification of investment strategies.

A risk versus reward ratio that allows people to both achieve their retirement goals and sleep at night can be tricky in a market environment in which wild swings are the new standard, according to Sam Winch, president of Winch Financial and a registered investment advisor representative for more than 15 years.

“In any given year the market is going to swing plus or minus 50%,” he said. “The vast majority of client accounts can’t absorb swings like that. You’re talking about people’s life savings and you can’t expose them like that. The solution is a combination of strategies that narrows the parameters of loss, while still allowing some room for upside growth.”

It’s not enough to diversify investments in a single strategy, according to Winch. Advisors who simply match their clients’ risk tolerance profile to an appropriate strategy aren’t doing enough.

“It’s important to base your returns relative to the amount of risk your taking,” he said. “The returns, obviously, are a critical component of your allocation. For instance, alongside your indexed funds, direct 10% of your allocation into a tactically managed fund that will allow for some agility within the market.”

“We have a mutual fund that is a perfect example of this new breed of investing. The Ginkgo Multi-Strategy Fund is designed to be a key element in a well-diversified retirement portfolio because it aims to offer steady returns, with stop/loss provisions and a unique ability to move to cash when market conditions are especially dire.”

Tactically managed funds can be more expensive than their less actively traded counterparts, because they move into and out of the markets as conditions warrant. They also offer a sense of security most funds lack. Invest in a buy-and-hold strategy and risk missing the ability to capitalize on market momentum. Rely on an indexed fund and you may need to ride an investment all the way to the bottom.

By allocating to a studied variety of strategies, investors can mitigate the downside risk of each – potential loss of principal in an indexed fund, potential missed gain in a buy-and-hold strategy.

“The biggest worry I see with clients is that they don’t want to lose money,” Winch said. “I’m going to work very hard to make sure that doesn’t happen. But, when you factor in the impact of looming inflation, taxation and, hopefully, a long life expectancy, you need to be very conscience of making some money for them as well. The best solution we have is to offer a careful diversification of strategies with a keen eye on an investor’s risk/reward profile. The idea, of course, is to make their money last their life.”