Staying Focused in Volatile Times - Managing Investment Risk Sonia Kowal, President Kevin Callahan, CFA, Senior Portfolio Manager www.zevin.com (617) 742 - 6666 Managing Sustainable and Responsible Portfolios Since 1997 1
www.zevin.com | 617-742-6666 | invest@zevin.com 2
Risk ( rĭsk ) noun 1: the possibility of suffering harm or loss; danger. also: a strategy board game by Hasbro in which controlling the continent of Australia for the entire game rarely leads to global domination. “Risk” can be a very subjective concept with intricate meanings. It means • different things to different people (even people within the same board or investment committee). Risk does not simply mean “volatility,” despite what the investment industry • may tell you. Risk can also mean very different things at various junctures in an • organization’s life or at different points in an economic cycle. What does the word “risk” specifically bring to mind for you? • www.zevin.com | 617-742-6666 | invest@zevin.com 3
Risks Faced by Endowments • Survival Risk – will your endowment/investment assets endure? • Fiduciary Risk – are your consultant, custodian, and investment manager putting your interests first? • Liquidity Risk – will cash be available in the moment that you need it most? • Investment Risk – are your asset allocation and your investments goal- appropriate? • Performance Risk – is/are your investment manager(s) delivering acceptable performance? • Panic Risk – will you maintain the discipline of your Investment Policy Statement (IPS) in financial market turmoil? www.zevin.com | 617-742-6666 | invest@zevin.com 4
Stock Market: 30-year review Stock Market is influenced by many different factors. In the short term, it can be volatile o In the long term, it has trended higher o Invest for the long term but plan for the short term Have enough short-term investments for 3+ years of expenses o Stock market pull-backs range from about 10% - 50%. The 2 largest pullbacks/corrections resulted in the US stock o market falling about 50% each time. It took 4.3 and 6.8 years for the stock market to recover its losses. Can you wait? www.zevin.com | 617-742-6666 | invest@zevin.com 5
The Market in Context S&P 500 Index – Performance over different periods (June 30, 2004- March 27, 2020) 3,000 3,000 5.2% Annualized Return 2539.96 2,500 2,500 2,000 2,000 1,500 1,500 11.8% Annualized Return 1,000 1,000 361.09 '06 '08 '10 '12 '14 '16 '18 '20 www.zevin.com | 617-742-6666 | invest@zevin.com 6
Re-evaluate your Game Plan Review your long-term plan Be aware of your Goals, Timing and Risk Tolerance o Does your plan still make sense? o Stick with it or modify it as necessary Possible changes to Asset Allocation Re-balance your portfolio o Example 1: Reduce stock ownership + Increase Bonds & Cash o Example 2: Increase stock ownership + Decrease Bonds & Cash o Be objective (as much as you can) … Emotions can cloud decisions www.zevin.com | 617-742-6666 | invest@zevin.com 7
Remember … Every savings and investment product has different risks and expected returns. Allocating your money among these ”buckets” will determine your investment portfolio’s risk profile. How will your investment portfolio perform? o www.zevin.com | 617-742-6666 | invest@zevin.com 8
Investment checklist Craft/Review your Investment Policy Statement • Choose your partners wisely. Do they understand your values / goals? • Properly identify your risk tolerance. • Establish liquidity measures that protect you • Understand the inevitable deviations in performance as they occur. • Don’t panic - Take advantage of market volatility. • Communication - Who is in charge of asset allocation? • www.zevin.com | 617-742-6666 | invest@zevin.com 9
Proactive Steps to Consider Dollar Cost Averaging Make regular contributions to your investment portfolio. o Dollar Cost Averaging is a great strategy to follow. If the stock market falls, you can buy more shares at a low • price … it’s like the stock market is “on sale.” Consider Environmental, Social and Governance (ESG) factors You want to invest companies that are sustainable and that align o with your values. Such companies may hold up better and recover faster. www.zevin.com | 617-742-6666 | invest@zevin.com 10
Environmental, Social, & Governance (ESG) Risk ESG is an often-overlooked indicator of risk and opportunity. • University of Oxford meta-study (2015): responsible business practices are • linked to better financial performance Finding companies responding to world’s sustainability challenges • Creating positive impact through engagement & activism • Social Environmental Governance Strong human Science based Advocacy on executive o o o capital greenhouse gas targets compensation and the management gap between CEO and Pressing for median worker pay o Pressing for sustainable protein & o improvements to no-deforestation paid sick leave & policies family leave www.zevin.com | 617-742-6666 | invest@zevin.com 11
Action Plan There are many kinds of risks to heed for your endowment or strategic assets. • o Spend time identifying the ones that matter most to your organization and continually assess them. o Worrying before a financial crisis should help you survive it better. Your Investment Policy Statement should act as an important roadmap for you and • your investment manager. It should cover: o Your mutually understanding of your comfort with risk, o How risk is defined, o How your values are reflected in this plan. Find an investment manager that pays attention to macroeconomic and ESG risks • that could derail your investment goals. Monitor the risks that you are most capable of assessing and let them monitor the • others. www.zevin.com | 617-742-6666 | invest@zevin.com 12
Summary Have a Financial / Investment Plan Make sure plan is in-line with your values and expectations o Plans can be modified o Pursue a balanced approach Be aware of the risks you’re taking o Invest for the long-term but plan for short-term up’s & down’s o www.zevin.com | 617-742-6666 | invest@zevin.com 13
Thank you for your time Contact us to receive our quarterly newsletter or to ask additional questions Sonia@zevin.com Kevin@zevin.com 617-742-6666 Zevin Asset Management is a Certified B Corporation and a 100% employee-owned firm and majority women-owned firm www.zevin.com | 617-742-6666 | invest@zevin.com 14
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