Ask the Adviser: Risk-Managed Investing

If you have money in the financial system (stocks, bonds, retirement funds, etc.) and you share the same skepticism most of our readers have about the markets' future stability, how should you invest those funds?

Most of the folks who inquire about our endorsed financial advisers are far more interested in preserving the purchasing power of their wealth vs. aggressively trying to beat the market average each year. But how exactly does one do that?

In this week's podcast, Chris sits down again with Mike Preston and John Llodra to discuss risk-managed investing. In a nutshell, this is an approach that seeks to deliver decent (though rarely spectacular) gains when markets are up, but loses much less on a relative basis when markets move to the downside. Chris asks the team to expound on the strategy they pursue, as well as the vehicles investors interested in this approach can use.

Managing investment risk is the single most important value that we bring to our clients’ lives. You really have to distinguish between volatility and risk.

People generally think that volatility is risk, but that is not necessarily true. There are lots of instances in the market that we could point out where volatility is very low – for instance, like in late 2007 – but risk, by the ways that we measure risk, would be very high. There are other times where volatility would be very high, but risk would be a lot lower – for instance, March 2009 would be a better example, with VIX trading up around 50 or higher and the market swing 500 Dow points or more. But as we look back now, we understand that risk was lower in the longer term over that period.

Right now is another good example, I think. As we sit here in January of 2013, the volatility in the market, or risk, is really low. But while risk is also sometimes measured by standard deviation, where there is not a lot of day-to-day change in volatility, risk, we think, is very high right now.

And so we have to be pre-emptive and decide when risk is high, even if volatility is low, and make certain types of adjustments to our portfolio. Those types of adjustments generally would include using special tools to hedge against that risk and could include (and usually include) raising cash in portfolios so that we can deploy the cash at better valuation levels. Really, the name of the game is being patient enough to sit on cash or cash equivalents when appropriate and when risk is high so that we can deploy them when risk is likely to be better rewarded.

If after listening to this podcast, you find yourself interested in connecting with Bill, Mike, John, and the rest of their team to learn more about their advisory services, please use the form here to do so.

Transparency note:  As a result of our public endorsement, Peak Prosperity has a commercial relationship with this firm. The details of this relationship are clearly presented in writing during the referral process -- but the punchline is, our relationship does NOT result in any increased fees to those who become clients.


It should go without saying: this discussion should not be construed as individual financial advice by those listening to it. The content should be taken as informational and educational in nature only. Investment advice must be tailored to your specific personal situation (which Chris and his guests are obviously unaware of) and should be obtained directly from a financial adviser you trust. Before acting on any of the statements made in this podcast, we advise you do just that.


Click the play button below to listen to Chris' interview with New Harbor Financial (45m:54s):

This is a companion discussion topic for the original entry at

When dealing with chaos it is appropriate to use Chaos Theory. Economists are not using the right tool for the job. (Linear Mathematics)
What I hear you saying is that Modern Management Principles assume the risk orbits a Strange Attractor.(equilibrium to economists) However when the economy is flooded with money risk chases yield around another Attractor -at the origin.0,0,0.

Who really cares about market returns when the money itself is going to die.  Nominal returns will have no meaning in the future we are facing.  I for one have no interest in this kind of content. 

Many good ideas and nontraditional tools are outlined in this interview however this model must be very expensive. 
In a One Million dollar retirement accout it would be prudent to have 40 or 50 positions to get good diversification. Moving in and out or decreasing or adding to these positions means lots of trading. Often firms like these have trading costs that are much higher than the $8.00 a trade discount broker fee. Add options costs on to that and an investor could have many thousands of dollars in fees in a given year on top of the management fee. 

This could be justified if these folks have consistent positive returns. However there was no mention of their performance over the last 10 years. 

If someone is really clueless about investing this might be a good model, but personal responsibility has to mean getting educated about your own investments if you choose to be in that space. 

 Market timing can be a dangerous game even for pros like these guys. 

…I am just NOT interested in anyone handling my affairs, ever. As I see things I can accept failing if I am responsible. Energy is all I am interested in, and will remain focused on this as an investment. Taking a percentage of the gains to capture physical Gold and Silver. So far so good.

I am responsible… and my problem with pieces like this is that it paints of picture of a future that is kinda like the past, only you have to tweak things a bit.  The future will be very different, and will very probably include a total dissolution of the paper forms of wealth we now hold (if we hold them).  That does not mean that I don't advocate making profits in the paper system… I very much do…in fact that is part of my plan. If I had to outline my own plan, based on my expectations… it would be as follows;1)  Be patient and wait for the upcoming boom in real asset investing - make profits in the things you know (could be oil, could be Silver and Gold and miners, could be cattle futures).  
2)  This is the really hard part;  Be ready to take profits and get out of paper before the collapse.  When things collapse I don't want to own paper anything… I want physical assets.  I don't want anything behind the IRA/401K wall if I can help it.  I want to cash out and have a plan to reinvest… more physical Silver may be the way to go at that point.   
If the collapse comes too fast, then you are where you are, which is why one always needs to have their core of physical assets and preps ready at all times.  If you can get the timed scenario above correct, then I expect you can really multiply wealth as the sheeple realize that money is dying, creating the parabolic phase for PM's and other assets.         

Then, come what may, whatever that is I want a fighting chance. All I have ever wanted quite frankly. Preparations, Resiliency and Hope.