The Ability versus a Willingness to take Risk. What is the Difference?

The backbone of Universal Investment Management is simply built on the goal of acquiring future cash flows at an attractive price. Hirtle Callaghan believes firmly in constructing diversified portfolios from a wide range of potential return sources which offer attractive assets at undervalued prices.  The result of this investment philosophy executed within a disciplined, patient investment process ultimately leads to a family or institution reaching their investments goals over time, whether it be supporting an endowment spending policy, increasing the purchasing power of an asset, or growing a family foundation.

As investors, there are many pitfalls which can derail a well-intentioned portfolio from reaching its longer term goals.  One of the many important tasks a Chief Investment Officer plays in the management, leadership and oversight of a portfolio of assets, is properly assessing the risk or volatility tolerance of his or her client.   Having a clear understanding of this is a somewhat vague idea and not as easily gained as it would appear.  For example, an ability to take risk or simply, "How much can my portfolio go down before my spending has to change?" is fairly scientific. In this scenario, we can build a diversified portfolio of assets with a reasonable degree of certainty showing how much downside it has in it.  While nothing is 100%, statistically being correct 70+% of the time is a good batting average.  With a fairly confident answer in hand, a portfolio can be constructed.  This will help avoid breaking one of the cardinal rules of successful investing which is selling quality assets at a bottom versus being able to hold them or even buy more while the market goes through a short term price movement that is driving by factors other than valuation.

In contrast, a willingness to take risk is not as easily defined.  At face value a May investor may say, "I can handle lots of short term price volatility and I understand long term investing etc."  We all know this willingness to take risk can and will be put to the test.  History reveals a significant divide between the talking about this willingness to take risk and what actual investor behavior is when markets experience downside short term volatility.  Buying high and selling low is a well-known investor pitfall.

As Chief Investment Officers, we apply a keen listening ability, years of CIO experience and a rigorous Investment Planning process to help as assess the real "willingness" of our clients to experience volatility in the market.  To be successful as investors, we must be able to maintain "the patience" and stay focused on executing a disciplined process without getting caught up in the emotion of the market.  Having a clear as possible understanding of an investor’s ability and a true willingness to take risk will help ensure successful investor behavior.

William T. Curran, CIMA - Investment Officer

Bill is an Investment Officer of Hirtle, Callaghan & Co. and joined the firm in 2006.  Bill leads the Mid-Atlantic Team representing the firm throughout this geography.  Prior to joining Hirtle Callaghan, Bill was employed at Delaware Investments promoting and servicing Delaware’s high net worth, endowment, foundation and pension money management programs throughout a Mid-Atlantic and Northeast territory.  Bill earned a B.A. from Ohio Wesleyan University in 1992 and a M.S. in Business Administration from Boston University in 2005.  Bill served as an officer in the United States Marine Corps from 2000 to 2004.  Bill is a Certified Investment Management Analyst.

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