capital preservation

Broadening Our Horizons

© Can Stock Photo Inc. / phototrekker

For many years, we have specialized in total return investing. If the fruit crop is enough to live on, we haven’t needed to care what the neighbor would pay for the orchard. We have promoted the idea that living with volatility is rewarding. The concept seemed right for the times, since the prevailing low interest rates offer little return on fixed investments.

This traditional core approach hasn’t been right for everyone. Some lack the confidence that we will overcome our challenges, persevere, and continue to grow and thrive. Others just can’t tolerate the ups and downs of long term investing. While our approach is not right for everyone, some of the alternatives are not good either. Consequently, we have come to the realization that we can do a better job for you and others if we offer a range of options.

One client on the verge of retirement has a more pessimistic view of the future than we do. He concluded he ought to put half of his wealth in capital preservation strategies that are likely to hold the money together in case of disaster. And he also concluded that the growth potential of our core approach could be an important hedge against rising cost of living in the years ahead. So he ended up with a 50/50 split based on the idea that he might be right, or we might be right—and the best course was some of each instead of all of one or all of the other.

A retired couple has been comfortable with our approach, but felt that 20% in more stable strategies would offer some preservation against unexpected major health problems.

Others understand and like our traditional approach, and have no desire to change a thing. The key is, each person may make their own decision about the tradeoff between stability and growth.

So we will be bringing our values and principles to a wider range of options. We’ll be at home with a range of viewpoints and investment objectives. On the capital preservation side, we will bring our research strengths to attempt to avoid the major sources of risk and to find opportunity where we can.

That old “buy low, sell high” thing continues to influence our thinking. We won’t be interested in helping people sell out at the wrong time by getting more conservative at low points. Nor will we want to see people getting enthusiastic and more aggressive at market high points. The new structure of offerings is intended to help people find the portfolio they can live with in all market conditions—and be able to do that in our shop if they choose.

As always, if you have questions or concerns or would like an expanded discussion about your circumstances, please email or call.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.

The Risk You Don’t See

© Can Stock Photo Inc. / larryhw

United States Treasury Bonds have long been considered among the safest investments in the world. But bonds with extended maturities, twenty or thirty years, have a lot of risk. This risk seems invisible and under-appreciated in today’s environment.

How would you like a twenty year long term Treasury bond paying 7%? Would that be good for you? People thought so in 1977. But by 1982 when interest rates had risen to almost 15%1, those bonds were only worth fifty cents on the dollar. Worse yet, inflation ramped up and damaged the purchasing power of interest earnings. When rates rise, the value of existing bonds goes down.

Since the financial crisis of 2007-2009, hundreds of billions of dollars have gone into bonds—a record tidal wave of money. One might guess this represents a flight to safety amid the uncertainties of the world. Some people got hurt in real estate, some were hurt by selling stocks after a crash, and they just want to keep their money safe.

Behavioral economics has shown that we humans tend to believe that current conditions and current trends will continue into the future. So if we pose the question, “What will a 2% bond be worth in a 5% world?,” most people can’t even conceive of the possibility of 5% interest rates. While everybody seems to understand that the stock market goes up and down, few seem to remember that the bond market also goes up and down.

As inflation begins to pick up, investors may be leery of owning 2% bonds that are going backward in purchasing power. If the sellers come out, bond values may decline while interest rates go up. The more selling, the greater the losses, which produces even more selling.

We are not predicting this will happen. But we do know a similar situation happened in the past. Fortunately, we are working on ways to preserve capital without facing the large risk from rising interest rates. If you would like to know more, please call or email us.

1Data from St. Louis Federal Reserve


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.