Investing Stewardship: Implementing risk with prudence

At M2 Stewardship Group, we approach various types of investing situations, applications and tools with a similar vain.  Whether we are working with individuals and their personal savings or retirement resources (M2 Capital Advisors) , business leaders with a desire to offer greater fiduciary stewardship to their employees (M2 PowerPlan!) or even developing our select growth stock portfolio, measuring and quantifying risk is always in our mind. Risk is often describing a peril or concern, but it is almost always referencing a measurement and it is essentially neutral.  It is neither good or bad, but simply a present and future dynamic of every investment opportunity or current ownership.

 We, at M2, are committed to a intentional stewardship approach to managing portfolios and offering help to others.  It begins with a question: What is the understandable risk and to what degree do we approach that with client's resources?  IT then begs the question what is the potential gain or benefit?  To ask those in reversed order often reduces the clarity and prudence of decisions.

It is our belief that in the capital markets, risk and return are most always linked. Over time, more volatility exposure should generate more gain.  The key is to continually measure that relationship.  We believe investing is the Art (goals & planning) of applying the science (math) of capital markets.

Over the many years of investing our own money, the wealth of our clients and offering guidance to many others,  the following explains how we have chosen to quantify the process that we use to determine appropriate risk stewardship for our client's various investment portfolios:

In determining the decision to allocate capital.  It begins with:

What is the client's Risk _________:

1. Opportunity (access): Based on individual situations and various IRS and SEC rules along with the tools and experience of the investment advisor, there is a spectrum of opportunity that includes various risk, asset category, etc.   
2. Tenacity (tolerance):  This is the proverbial "How risky are you" question.  It is almost always a function of personal experience and/or personality.  Essentially this is the emotional dynamic.
3. Capacity (resources):  What effect will making or losing money have on your day-to-day and also future life and lifestyle?  Allocating risk as a metric of overall value is important, both regarding gain and loss.
4. Necessity (need):  We believe this is the most important concept.  Prudence and stewardship should be a guiding principle here.  Interestingly, it is those that have taken unreasonably concentrated risk or those who have taken none at all that benefit from a generous conversation in this area.  Much more on this in a later article.

Out of this progression of questions and specific answers, we are able to approach portfolio construction in a way that offers prudent exposures, proper timelines and measured expectations.

We will describe and outline each of these in follow-up posts.


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