Using Guideposts for Investment Risk Management

By Brian Zwerner

Introduction

Former Managing Director at the Fixed Income division at Wachovia now Wells Fargo, Brian Zwerner focuses primarily on valuation and investing in structured products. In 2007, Brian Zwerner launched Kensington Blake Capital, a principal investing and valuation firm based in Atlanta, Georgia. He currently serves as Managing Principal at Kensington Blake Capital.

Reducing Risk

Reducing risk is one of the most important tools for maximizing returns, but it is nearly impossible to predict how the market will behave. Guideposts are a new tool investors use to calculate risk based on past market trends using an if-then approach. For example, an investor can pull up charts for a good financial year compared to a bad financial year and make decisions based on each one.

Conclusion

An example given by The Wall Street Journal shows that if, in 2014, the market acts similarly to the 2008 or 2010 markets, investors can reduce their commitment to a specific type of investment. While guideposts are not a foolproof way to reduce investment risk, they serve as a useful tool for gauging potential outcomes based on historical data.