Human behavior, much like markets, is cyclical. Often, as a lengthy benign or bull period persists, a sense of complacency begins to creep into the markets.
More than ten years later, memories of the Global Financial Crisis have started to fade and lessons learned are being forgotten.
In our opinion, the perfect time to consider what investors can do about market risk is before markets sell off.
One of the best ways to help investors understand the Defined Risk Strategy (DRS) and to form reasonable expectations for how our strategy performs in market sell-offs is to examine the DRS performance in previous periods of market duress.
“It’s tough to make predictions, especially about the future.” — Yogi Berra
In the wake of the Global Financial Crisis of 2007-09, numerous statistical tools became available that attempt to quantify the risk to a portfolio under adverse scenarios. Broadly speaking, these types of tools attempt to estimate future risk following one of two methods:
Each has their relative strengths and weaknesses. Neither is perfect.
Beyond the two traditional tools for return generation used in portfolio construction, bonds and stocks, other “options” have arisen for investors – option-based strategies.
Option-based strategies seek to define the risk and reward over a particular time frame and/or seek to generate cashflow; they have proved themselves a useful tool in market environments that were difficult for equities, bonds, and other liquid assets.
Learn more about our distinct investment process, review performance, explore available DRS structures, and more.
*Source: Swan Global Investments and Morningstar; the S&P 500 index in an unmanaged index, and cannot be invested into directly. Past performance is no guarantee of future results. The performance numbers referenced above are used for illustrative purposes to indicate the DRS’s performance during Bear Market conditions.