Alhambra Investment Partners is a Registered Investment Advisor and must act in your best interests. We have structured our company to eliminate the conflicts of interest that plague the typical Wall Street firm but to really do what is best for you, we must first understand your needs, goals, fears and experiences.
Matching your personal risk tolerance with an appropriate portfolio is our primary goal. Achieving this goal requires that we understand your personal investment history, your knowledge of financial markets and your investment personality. Most financial planners or investment advisors consider risk tolerance only as it relates to the financial goals you set. If reaching your financial goal means taking more risk, they will generally recommend a portfolio that theoretically allows you to reach your goal. We believe this is a recipe for disappointment and unnecessary stress. An investor with a conservative risk tolerance should not be paired with a higher risk portfolio just to reach an arbitrary set of goals.
Risk is a hard term to define. Traditionally in finance it refers to the volatility of a portfolio but most people define it as the potential for loss of principal. A conservative investor who chooses a more volatile portfolio to achieve a financial goal is more likely to realize a permanent loss of principal. As his portfolio suffers through a temporary drop in value, the conservative investor is more likely to liquidate the portfolio before it has a chance to recover thus turning a temporary loss into a permanent impairment. We attempt to avoid this situation by matching the portfolio to your investment personality.
Modern Portfolio Theory shows that portfolios constructed of assets with low correlation have historically produced higher returns with less volatility than the traditional portfolio of stocks, bonds and cash. We used MPT concepts to construct a series of multiple asset class model portfolios with varying degrees of volatility for four classes of investor: Conservative, Moderately Conservative, Moderately Aggressive, and Aggressive. In addition to an interview, we use a risk tolerance questionnaire developed by two university personal finance professors to determine which portfolio fits your risk tolerance.
We work with our clients to develop an investment plan that conforms with their risk tolerance and allows them to reach their financial goals. You will only reach those goals if you have a plan you can stick to through the inevitable ups and downs of all markets.
