Participate Yet Protect - We Take Downside Risk as Serious As You SHOULD!
The Importance of Our Participate Yet Protect Philosophy
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A Mathematical Catch-up Game
Is it better to accumulate consistent gains on a yearly basis or have years of exceptional returns combined with years of losses? While occasional large, positive returns may look attractive, ultimately, it's consistency that may be the best approach. Need Proof?
Proof in the Numbers
Suppose you invested $100,000 in the S&P500 Index* on October 9th, 2007 just before the "Great Recession" As of March 5th, 2009, the bottom of the market decline the S&P500 Index had gone down about 56%. The value of your S&P500 investment would be only about $44,000. To fully recover from your 56% loss, you'd need to gain 127% versus the 56% you were down.
While the current investment outlook appears quite favorable, there is always a risk in the market, and we continue to recommend “participate yet protect” strategies to reduce downside risk as much as possible while still participating in potential market gains.
* Investors can not directly invest in indexes. Past performance is not a guarantee of future results.
A Look At Declines & Recoveries From A Numbers Perspective | |
| The graph shows how the larger a loss, the greater the subsequent recovery required to break-even. Therefore, a consistent approach to investing, which seeks to avoid significant negative returns, may prove to be more beneficial in the long run than aiming for sporadic short-term gains. |
Consistent Investment Approach
Since founding Hutchison Investment Advisors, Dave Hutchison, CFP has been dedicated to a participate yet protect approach to investing to reduce downside risk as much as possible in diversified investment portfolios.
A Portfolio Designed for Bull and Bear Markets
Our philosophy on diversification has proven its importance in market declines. There are conservative investment options that have done comparably well even in market decline.
Many new clients coming to us have portfolios for the realities of the past instead of still being invested based on current market conditions. As the market environment changes, portfolios have to be adjusted accordingly. For example, bonds have benefited from an extended period of interest rate declines. Today we are near-historic low interest rates. When rates rise, most bonds lose value. Today we warn against most bond investments and recommend alternatives without the interest rate risk of most bonds.
Because Risk Matters
We believe that you do not need to take as much market risk as we see when reviewing most new client portfolios, to achieve healthy long-term growth.
We believe the key to the best long-term investment returns is not so much hitting the biggest winners in a good market but avoiding the big losses in a falling market. This is because if you suffer a typical bear market loss of 37%, it takes a 59% gain to just break-even again.
A diversified portfolio does not assure a profit or protect against loss in a declining market.
Investments in securities do not offer a fix rate of return. Principal, yield and/or share price will fluctuate with changes in market conditions and, when sold or redeemed, you may receive more or less than originally invested. No system or financial planning strategy can guarantee future results. Therefore, no current or prospective client should assume that future performance or any specific investment, investment strategy or product will be profitable.