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Investment Process

The investment process at L Squared Wealth Management consists of three steps.  First, we work with you to determine your investor profile.  There are a number of elements that go into determining this including your age, financial status, time horizon, and risk tolerance.  Once we have determined your investor profile, we select investments that are appropriate for you.  This includes allocations to stocks, fixed income, and real assets.  Finally, we apply a level of risk management to your portfolio. Typically this is done using a strategy in which a portion of the portfolio is flexibly invested to respond to changing market trends.


Investor Profile

Your investor profile determines the appropriate investments for your portfolio. Your profile is determined by a number of factors. Some of these are quantitative such as your age, time horizon, risk capacity, and financial status. Others are more subjective such as your financial objectives, risk tolerance, and any investment constraints. Based on all these factors, we determine an overall portfolio allocation that is right for you.


Investment Selection

Portfolio allocations are a balance between risk and reward. In general, the more risk you take, the greater the potential gains. These larger gains come with an increased susceptibility to losses. Depending on your investor profile, your portfolio allocation can range from conservative to aggressive. Typically, stocks (equities) have higher risks than bonds (fixed income). Aggressive portfolios have a larger allocation to equities while conservative portfolios have larger allocations to fixed income.

We use a combination of mutual funds and exchange traded funds (ETFs) in your portfolio. These type of investments provide diversification to reduce the risk that can arise from investing in only a few companies.


Risk Management

While investment selection and diversification are important, many investors suffered losses of 30% or more in 2008 with “well diversified” portfolios. Markets recovered from these losses, but many investors sold their stocks before the recovery. We all have a pain level where we can't take any more losses, so we sell. Then, even when the markets start to bounce back, we miss the recovery since we did not get back in. 

At L Squared Wealth Management, we believe the best way to get ahead in the market is to minimize the inevitable losses. Losses are more painful to your financial health than gains are beneficial. A 50% loss requires a 100% gain to break-even. On the other hand, if we can limit losses, it is easier to get back to even. For example, a 15% loss only requires a 18% gain to break-even.

Due to the effects of human emotion (greed and fear), the investment market tends to move in trends. When the market is going up, greed leads people to want to buy, while when the market is declining, fear causes them to sell. This often leads investors to buy high and sell low, just the opposite of what they should be doing. The last 20 years have had large uptrends and downtrends.

At L Squared Wealth Management, we apply risk management strategies that attempt to take advantage of these market trends. These strategies identify buy and sell points in an attempt to minimize losses in downtrends and to stay invested in uptrends. The goal is to get ahead by reducing losses.


While we believe our risk management strategies can help you achieve your long-term financial goals, it should be kept in mind that no strategy can guarantee a profit or protect against a loss.

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