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Most investment programs offered in the financial services industry are geared toward producing performance that is favorable in comparison to one or more market indexes. Thus, if a portfolio’s “relative performance” is higher than a given benchmark index, the money manager can claim that it “beat the market.”
The plain truth about Wall Street’s focus on relative performance is that money managers can claim to be successful even when they have double-digit losses, as
long as their losses are not as large as their benchmark’s.
That’s why the primary goal of all of the investment strategies we recommend is to produce “absolute returns,” which are consistent positive returns in both up and down market environments. The concept of absolute returns is discussed briefly below, and a more detailed analysis is available in our Absolute Returns Special Report. Of course, there is no guarantee absolute returns will always be achieved.
We believe that investments should be managed by qualified professional money managers with an eye toward reducing the risks of being in the market. We have developed two specialized investment programs, each of which embodies the concept of absolute returns. Click on the names of these programs below to learn more about their approach to absolute return investing:
AdvisorLink® – The Smart Way To Invest
Absolute Return Portfolio – An Alternative for Buy-and-Hold Investors
Why Do I Need An Absolute Return Strategy?
Many wealthy investors, public corporations, and large pension plans use absolute return investment strategies for at least part of their money. The reasons vary, but perhaps the biggest motive these "sophisticated" investors have in seeking absolute returns is that they already know the risks of relative returns, and try to avoid them as much as possible.
While many investors become fixated upon “beating the market” based on some artificial measuring stick such as a stock market index, sophisticated investors know that the only yardstick that counts is the return necessary to meet their financial goals. If “beating the market” can still mean losing money, doesn’t it make sense to seek out alternatives to relative return strategies? We think it does.
Another good reason to consider absolute return strategies is that even the most ardent defenders of relative return programs admit that substantial periodic losses are just part of the game. They point out that the long-term trend in the market is upward, but short-term volatility (and losses) can be substantial.
Thus, it’s not a question of whether or not there will be major down markets, just when they might occur. Their solution? Just hold on during the losing periods and the market is bound to bounce back – eventually. But what happens if you need your money during one of these down periods? Unfortunately, the answer is often, “change your plans.”
For example, during the 2000 – 2002 bear market in stocks, the S&P 500 Index lost over 44% of its value. Such a loss requires a subsequent gain of almost 80% just to get back to break-even. You may recall the sad stories of workers who were ready to retire, only to see a substantial part of their nest egg simply disappear. We’d bet that some of these people are still working to replace the savings that were wiped out by the whims of the market.
While absolute return strategies cannot guarantee against losses, they are all designed to mitigate their potential impact. In most cases, this is accomplished through active account management, which includes such strategies as sector rotation, technical analysis, momentum investing, and many others. You can learn more about active management strategies by referring to our Frequently Asked Questions Special Report.
Enhanced Portfolio Diversification
Our absolute return strategies seek to spread investments over a selection of investment programs that have historically posted positive returns in various market conditions, though there is no guarantee of future performance. The result is diversification among a variety of investment strategies, and not just asset classes.
Incorporating absolute return strategies in your portfolio is not an "all or none" decision. We often recommend that you allocate a portion of your liquid portfolio to absolute return strategies. This not only allows you to compare the performance of the absolute return strategies to that of your other investments, but can also add another phase of diversification by including multiple investment strategies. We call this “compound diversification,” and it often adds investment strategies that may have little or no correlation to other buy-and-hold investments in your portfolio.
Need Help? Here’s How to Get the Ball Rolling
An investment management recommendation can only be effective if it is made within the context of your financial goals, risk tolerance and other investments. Otherwise, any absolute return investment program would simply join a disjointed portfolio with no coordination or overall direction.
For this reason, the first step in our client relationship is to obtain important information about your personal financial situation in order to better tailor our recommendations to your individual needs. The best way to begin this process is to give one of our Investment Consultants a call at 800-348-3601 to discuss how our absolute return strategies may be incorporated into your portfolio.
Your Consultant will answer any questions you may have about absolute returns or our investment programs, and will send a Confidential Investor Profile questionnaire to you for completion. This questionnaire helps us help you by identifying your investment goals, defining your investment expectations, and determining your tolerance for investment risk.
If you would like to expedite the process, you can CLICK HERE to start your Confidential Investor Profile and begin the information gathering process. (Note – Your confidential personal information will remain confidential. We will never sell, rent or otherwise share your questionnaire information with any outside group or organization.)
Halbert Wealth Management Form ADV Part 2
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