Understanding the Risk
As anyone who is invested in the market knows, there are risks associated with nearly all investments and it is a double-edged sword. Sure, you'd like to make a fortune in the markets – who wouldn’t? The first thing you need to understand, before you commit even one dollar to a portfolio, is that it is impossible to realize a return on any investment without facing a certain degree of risk. According to Webster&rsquos Dictionary, risk is the "possibility of loss or injury". In investing, risk is the chance you take that returns on a particular investment may vary. In other words, there are no "sure things" when investing. No matter what you decide to do with your savings and investments, your money will always face some risk. You could stash your dollars under your mattress or in a cookie jar, but you would still run the risk of losing it all if your house burned down, quite possibly with fewer dollars in real terms than when you started! Investing in equities, bonds or cash carries risks of varying degrees. The second fact you need to face is that in order to receive an increased return from your investment portfolio, you need to accept an increased amount of risk. Keeping your money in a savings account reduces your risk, but it also reduces your potential return. While risk in your portfolio may be unavoidable, it is manageable.
Sources of Uncertainty (Risk)
- Business and Industry Risk - uncertainty due to firm or industry related factors.
- Inflation Risk - risk that inflation will reduce the real value of your investment.
- Market Risk – risk that the general market or economic environment will cause an investment to fluctuate.
- Liquidity Risk – risk that you won’t be able to sell an investment at a reasonable price within a reasonable time period.
- Currency Risk – risk that your investment could lose value as a result of a decline in currency value.
- Political Risk – risk of a political change affecting the value of an investment (nationalization, new regulations).
Managing the Risk
When it comes to risk, many investors just assume that it is the "price of admission" for being invested in the market. They think they will just have to go along for the ride. What they don’t realize is that there are ways to help manage risk – by understanding the market and carefully monitoring its movements. But this task is not something easily undertaken alone. It is a job best left to the professional techniques of full time strategists who make it their mission to monitor the market each and every day.
What is the "3 Stream Portfolio"?
The "3 Stream Portfolio" is generally a fully invested, managed asset program that may be used with your investments. It features:
- Equity Selection
- Diversification
- Dynamic Weighting
- Potential for Capital appreciation
- Option premiums [Covered Calls]
- Mitigation of Risk
The program seeks to manage risk by being invested in large and mid cap, highly rated equities with a track record of paying shareholders dividends. The program is a longer term strategy more in keeping with longer term investor goals. With the longer term view we are able to create a further stream of income on a periodic basis by selling covered calls. The premiums and dividends from the call strategy are used to purchase additional securities. The upside potential of the underlying security is limited to the amount of premium paid [and received] for the call and losses to the underlying security will be offset only to the extent of the premium received.
How does the program work?
Phase 1 - Diversification: Your investment is broadly diversified by allocating the assets across two general classes: Domestic Equity and International Equity. The percentages within these asset classes are based on the classification determined through the Investor Profile.
Phase 2 - The Dynamic: This step determines how to position the portfolio, recognizing that changing economic cycles can cause investment styles to move in and out of favor. The "3 Stream Portfolio" assesses each asset class to determine how to weight the portfolio. For domestic equity, the "3 Stream Portfolio" determines allocations across styles (value, growth, and blend) but targets large capitilization dividend paying stocks. For international equity, master geographic areas are analyzed (Europe, Asia, World, Japan, Foreign, and Emerging Markets). "?
Phase 3 - Putting it All Together: The "3 Stream Portfolio" now fills a position in an overall investment portfolio that is less concerned with market volatility and short term market movements. The result is a Professional Allocation plan that is tailored to your specific investment goals. It uses a highly disciplined process that seeks to invest in the top ranked Large Cap companies– weighted in the most advantageous way.
Phase 4 - Continuous Review: An important part of the process is in that it doesn’t stop with the initial allocation. Your portfolio should benefit from continuous review and periodic rebalancing to their target allocations based on your investor profile. Further, should a particular equity fail to continue to meet Kensington Management’s criteria, it will be replaced within your allocation. In these ways, the program never stops working for you.
What Type of investor should use the "3 Stream Portfolio"?
The "3 Stream Portfolio" is ideal for investors who want to position their investment for longer term goals and who recognize the benefits of continuous re-investments of dividends and premiums on the equity. The investors want to, generally, remain fully invested and have their assets managed and reallocated based on changing market conditions, while not having to monitor the market themselves.
Benefits of the "3 Stream Portfolio"
- Diversified according to your investor profile
- Generally fully invested, except in periods of extreme equity decline
- Allocated to seek reduced overall volatility
- Part of a highly disciplined process that takes away investor emotion or bias
- Managed by an experienced team of investment professionals
- Positioned to seek consistency and continuity that may help you participate in long-term market growth
Apply the "3 Stream Portfolio" Today!
If you are an investor who is looking for a better way to diversify and monitor your portfolio, apply the "3 Stream Portfolio" as a part of your overall portfolio today.
Past performance is not a guarantee of future performance or returns. Options strategies may include added risk and may not be suitable for all investors. The use of options may impact the liquidity of the underlying assets and should be understood carefully before investing.
Kensington Management and Northstar Financial Companies Inc.
The Professionals behind your investment
Northstar Financial Companies, Inc. and Kensington Management help clients investing in Large Cap Dividend paying investments reach their financial goals. Through its proprietary Market Monitor programs such as The Kensington Management Company’s "3 Stream Portfolio" described in this brochure – Kensington Management provides risk management solutions that enable investors to invest with confidence. Backed by tools for analyzing the markets and seasoned investment professionals dedicated to market monitoring, we believe that Kensington Management is the prudent investor’s choice for management services to help navigate the dynamic and demanding investment landscape.
