Welcome to the latest edition of Zephyr’s Adjusted for Risk Podcast, a journey where we delve into the heart of investment strategies and risk management. Hosted by Ryan Nauman, Market Strategist at Zephyr, this episode promises to uncover the nuanced landscape of investment risks and strategies with insights from Brian Jacobs, an investment strategist at Aptus Capital Advisors.
Introduction to Risk Management
Investing inherently involves understanding and managing risk. As Ryan Nauman points out, identifying primary risks in a client’s investment portfolio is crucial for financial advisors. The conversation with Brian Jacobs sheds light on strategies to hedge these risks effectively and the role that Aptus Capital Advisors plays in this domain.
Key Investment Risks
When exploring investment risks, Brian highlights two main concerns: market volatility and the ability of returns to compound over time. While market volatility and drawdowns are visibly impactful, the hidden risk lies in ensuring that returns meet long-term investment goals, particularly in the face of inflation and taxes.
The Role of Inflation
Inflation poses a significant concern in today’s economic climate. Brian suggests that while inflation is not a certainty, its potential impact necessitates a strategy that accounts for its variability. The conversation shifts towards leveraging equities over fixed income as a means to secure real returns amidst inflationary pressures.
Shifting Focus: More Stocks, Less Bonds
Interestingly, Aptus Capital Advisors adopts a somewhat contrarian view by advocating for greater equity exposure and less reliance on bonds. While bonds serve as a volatility reducer, their correlation with stocks can sometimes offset their effectiveness in diversifying risk. The focus, therefore, is on finding alternative ways to manage volatility and protect portfolios.
Understanding the Use of Options
Options have gained traction as a flexible tool within investment strategies. Brian emphasizes that while options are promising, understanding their associated risks is crucial. Their popularity has surged as investors seek to achieve balanced portfolios that fixed income alone may not provide.
Tax Efficiency: A Growing Priority
The conversation also touches upon the increasing emphasis on tax efficiencies in investment management. Strategies like those involving municipal bonds have long been used, but newer ETF structures offer compelling tax efficiency advantages, particularly within fixed income investments.
The Future of ETFs
Active ETFs have seen remarkable growth, and Brian anticipates continued expansion as they offer tax efficiencies and flexibility in crafting diverse investment strategies. The discussion also considers the evolving role of fixed income ETFs and their potential to reshape tax efficiency in investment portfolios.
Conclusion
This podcast episode encapsulates valuable lessons in risk management, offering a roadmap for financial advisors and investors alike to navigate the complexities of modern markets. Thank you for joining us on this journey, and be sure to subscribe to Zephyr’s podcast channel on YouTube and Spotify for more insightful discussions.
Zephyr can help you understand your client's primary investment risk through its robust investment analytics application.