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Power of Proactive Preservation

Ralph Drybrough | May 1

Looking back at another week of record highs, the VIX at around half of its historic average, and seemingly no end in sight, as fiduciaries, we need to ask ourselves: When is too much of this positive market activity no longer a good thing? If your answer is now, you are in good company. More experts than ever feel like the market is overpriced (CNBC). Whether you agree or not, upmarket regimes provide a golden opportunity to solidify client relationships by setting the stage to discuss proactive downmarket strategies.

Bringing up downside protection in an upmarket environment is a very natural conversation. Excited by the boost to their portfolios, clients want to try to protect the gains they’ve achieved. Not just that, this proactive conversation demonstrates dedication and advocacy for the client, along with a long term view of the client-advisor relationship. There’s also a potentially positive effect on the portfolio itself. Downside protection can increase portfolio longevity by generating asymmetric capture as well as creating a downmarket profit center. And, when the preservation kicks in, client satisfaction can lead to broader balance sheet penetration, as they may believe that you can effectively handle their investments across a broad range of market conditions.

The alternative to proactivity is considerably worse. It is possible that the markets start losing value, volatility will return, and a sense of panic sets in as hordes of investors abandon risk assets, such as stocks. Without proper preparation for the downturn, you could face a forced de-risking, and that is the last thing anyone wants to go through. It can be expensive, difficult, and complicate an already stressful situation. The subsequent conversations with clients could be in stark contrast to those you could have if the markets were increasing in value.

While we don’t know when this current streak of gains will end, when it does, we want to make that experience as painless as possible. That’s why StratiFi’s strategies can work with most portfolios and why we strive to remove implementation complexity every chance we get. So when you have the preservation conversation, it can be as simple and easy as possible.

To learn more about how StratiFi can be your proactive downside protection please schedule a demo.

To learn more about the truth behind asset correlations and volatility, click here for our complimentary eBook "The Five Myths that Put Portfolios at Risk: Revealing the truth and improving investment outcomes using options."