“Far better it is to dare mighty things, to win glorious triumphs, even though checkered by failure, than to take rank with those poor spirits who neither enjoy much nor suffer much, because they live in the gray twilight that knows neither victory nor defeat.”

— Theodore Roosevelt

President Theodore Roosevelt was a daredevil. His “cowboy” personality made him fearless in the face of risk. He regularly showed up to political assemblies bandaged and bruised from boxing matches and jiujitsu training. During his presidency (and, allegedly, until the end of his life) he skinny-dipped in the Potomac River every winter. These eccentricities were symptoms of an ideal he lived by, what he called “The Strenuous Life.”

“The Strenuous Life” is not about stress for stress’ sake. It’s about stress for success’ sake. In Roosevelt’s words, it’s about “that highest form of success which comes, not to the man who desires mere easy peace, but to the man who does not shrink from danger, from hardship, or from bitter toil, and who out of these wins the splendid ultimate triumph.”

Risk exists. We must accept its presence before we can achieve our treasured goals. Yet not all risks are necessary or promising — so how do we know which ones are worth embracing?

All too often, executives avoid re-evaluating their financial frameworks because they are afraid of what they have to lose. But with the right mindset and guidance, the risks posed to our financial wealth can be managed properly. Achieving greater ends for you, your family, and your community — in other words, your legacy — starts with establishing the rules to a custom and properly ordered “Strenuous Life.”

Customizing Financial Risk Management

Skydivers experience peak anxiety upon arriving to the sky-diving facility and peak happiness directly after landing safely on the ground, according to a 2015 study. Overcoming that initial emotional peak (or roadblock to happiness) is the main challenge. That’s why first-time skydivers are often surprised when their instructor says they will be pushed out of the plane at the count of three — but are shoved out on two. This trick is meant to avoid anxiety-peaked people grabbing onto to the plane’s doorframe and refusing to jump.

Fortunately, our methods are not as jarring. While we seek to provide provocative and inspiring mentorship when it comes to managing wealth, we understand that each investor has a different temperament that is only comfortable with a certain level of risk.

We use three broad profiles that each function as a basis for using relative strength to manage risk. They consist of those with a high tolerance for risk who seek aggressive strategies, those seeking outperformance using a tactical approach to risk, and those seeking absolute return with very little drawdown.

Once we determine which one of these profiles best suits your temperament, we can decide which indicators for raising cash make sense for you. When used wisely, the defensive strategy of raising cash can help preserve your portfolio from certain catastrophic market types. There are three indicators that suggest when this move may be necessary.

  1. DALI Cash Bogey Check: We compare this indicator to a light switch because it suggests the investor either raise cash or stay invested without any gradations in between. The trade-off of the DALI Cash Bogey Check is that, while it limits downside losses, it also limits initial upside potential at crucial turning points in the market.
  1. DALI Cash Percentile Rank: The DALI Cash Percentile Rank measures the relative strength of a cash proxy within a specific asset class matrix. We compare the results of our analysis to the three colors on a traffic light, ranging from a “optimistic” green light to a “cautious” yellow light to a “dangerous” red light.
  1. DWA Money Market Percentile Rank (MMPR): The DWA MMPR measures gradual changes in the relative strength of cash to other fund groups. If a money market is ranked in the top 50% or 70% of fund groups, the portfolio converts its positions to cash. The portfolio will only rotate back into funds if the money market falls below the 50% or 70% threshold upon the next monthly review. Of all the indicators discussed so far, MMPR has the longest time horizon.

Free From Fear, Free to Live

“The worst of all fears is the fear of living.”

— Theodore Roosevelt

Accepting the inherent risk of investing liberates us from overly cautious financial strategies that leave our goals unfulfilled. Fortunately, our clients are not limited when it comes to managing risk in their portfolios. We customize the way they channel the potential of risk in their assets.

And if there is one thing you need not fear, it’s facing those risks alone. We are a family office that has extensive, specialized experience with executives at publicly traded companies, and we’ve crafted a range of financial strategies that have worked well for our clients. If you’re up to facing down risks together, contact us today.

Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary. Past performance does not guarantee future results.

This information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of the author and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions, or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. 

This information was developed by D Custom, an independent third party, for financial advisor use. Raymond James is not affiliated with and does not endorse, authorize, or sponsor D Custom.

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