Content provided by J.J. Schenkelberg, CFA, CLS Senior Portfolio Manager


We all know “the market” (stocks, bonds, commodities, real estate, etc.) is where we should invest our money for the best opportunity to grow funds for future needs. We also know the more risk we take, the more return opportunity there can be. So, why doesn’t everyone have money in the market?

The answer is fear. There are many things to fear in life, and there are many ways investors can get hurt when they have money in the market. As humans, after getting hurt, it is difficult for us to enter a similar situation for fear we will feel this unpleasant emotion again. But if we don’t take those types of chances, we will miss out on many amazing opportunities in life. If those of us who swore to never have another boyfriend/girlfriend again after being dumped had followed through on our promises, we would have missed out on the loves of our lives.

The key role of an investment advisor and manager is to help clients stay invested in the market, despite the short-term declines they may experience along the way. One of the biggest mistakes a client can make is to jump out of the market when prices are low and fears are high. At this point, the client locks in losses and has no chance to recover lost assets. So, how do we handle the fears associated with investing in the market? CLS believes that helping the investor select an appropriate risk budget and investment strategy are two ways to handle these fears.

Selecting the Risk Budget

Identifying the proper risk budget often involves a questionnaire to identify an investor’s ability and willingness to handle market volatility. By identifying a proper risk budget, an investor can be assured that if the market takes a negative turn, controls are set in place that will attempt to stop the account from taking a larger short-term drop than he or she is comfortable with. Essentially, the risk budget determines what type of roller coaster ride the investor is willing to tolerate throughout the life of the account.

Determining the Appropriate Strategy

At CLS, we have a large number of investment strategies. Why? We believe a well-diversified, global portfolio, managed at the proper risk budget can be a solid way for clients to meet their investment goals. In addition to broadly diversified, global portfolios, we have strategies designed to produce income on a regular basis and protect assets in the event of major market declines.

Our Managed Income Strategy is useful for clients who feel better if their assets are generating a consistent stream of dividends and income. Fear is lessened because they appreciate getting paid dividends and income on a regular basis regardless of what the underlying prices are doing. This consistent stream of income allows them to withstand the roller coaster ride that is occurring beneath the income. This strategy also offers holdings to set aside cash and very low-risk assets to buffer the roller coaster further. By staying on the roller coaster ride longer, investors have the opportunity to recover when the market turns positive.

CLS’s protection strategies provide investors with an alternative security blanket to help weather the ups and downs of the market. Our protection strategies have triggers that will automatically sell assets if the market starts to meaningfully decline. While we discussed disadvantages associated with selling at low points in the market, the protection strategy offers step-ups to help protect gains in the portfolio and has a disciplined system to re-enter the market and try to avoid stepping in just before the market falls again. These strategies help clients who get anxious and need to see action when the market begins to fall, while maintaining a disciplined approach to re-entering the market.

Keeping clients invested is a key function for advisors and managers. If we can provide a strategy that helps maintain this exposure, we believe we are serving a need for all clients. Find the risk budget and strategy that is right for your client, and most importantly stay engaged in the market!

The views expressed herein are exclusively those of CLS Investments, LLC, and are not meant as investment advice and are subject to change. No part of this report may be reproduced in any manner without the express written permission of CLS Investments, LLC. Information contained herein is derived from sources we believe to be reliable, however, we do not represent that this information is complete or accurate and it should not be relied upon as such. All opinions expressed herein are subject to change without notice. This information is prepared for general information only. It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. You should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed or recom¬mended in this report and should understand that statements regarding fu¬ture prospects may not be realized. You should note that security values may fluctuate and that each security’s price or value may rise or fall. Accordingly, investors may receive back less than originally invested. Past performance is not a guide to future performance. Investing in any security involves certain systematic risks including, but not limited to, market risk, interest-rate risk, inflation risk, and event risk. These risks are in addition to any unsystematic risks associated with particular investment styles or strategies.