BWFA’s Approach to Risk Management



By:  Chris Kelly, CPA, CFP ®, M. Accy | Financial Advisor and Portfolio Manager

The Merriam-Webster Dictionary defines risk as,“the chance that an investment will lose value.” This “chance of loss” is what the professional portfolio managers at BWFA strive to manage on an ongoing basis.

Before delving into the intricacies of BWFA’s  risk  management  techniques and procedures, let me first provide the foundation of what risk really means for our investment management clients.

All investors are averse to risk. Most investors are able to tolerate the potential for loss if their accounts are professionally managed according to their individual risk profile and asset allocation model. If an asset allocation is riskier than the client’s tolerance for that risk, she may not be able to handle the volatility and inevitable market downturns. On the other hand, if an asset allocation is less risky than a client’s tolerance, this may force her to spend less and save more to reach her desired future goals.

Just as there is never a safe time to be in the markets, there also is never a safe time to be sitting on the sidelines. Market risk premiums are only rewarded to those investors willing to remain in the markets through the most trying of times.  Playing it totally safe, more often than not, leads to a loss of future purchasing power—courtesy of higher inflation relative to total return.

The professionals at BWFA approach risk management in a calculated and thoughtful manner. We use several measurement processes so that we are better able to attain a broad understanding of underlying risk factors.

In our quest to uncover quality investments, we analyze financial data and research many aspects of the companies we buy for clients. The analysis of corporate balance sheets, projected earnings, and cash flow data are staples of sound investment due diligence, and they are critical evaluation components employed at BWFA. However, the above analyses alone would not paint a true picture of accurate portfolio risk, unless they are performed in conjunction with other important statistical measurements.

The statistical measurements defined on facing page are the core of the investment and portfolio risk analysis process undertaken at BWFA. The terms

and calculations may seem complex and convoluted, but more important than our clients’ complete comprehension of the terms is the acknowledgement that we are committed to maintaining a healthy risk environment for our clients.

Helping each client choose an investment model that fits her specific risk tolerance is an important part of our job. Equally important is our follow-through with regard to risk analysis, and investment selection and application, so as to maintain portfolio balance that is in line with our clients’ risk expectations.

Feel free to contact a BWFA professional or stop by our offices if you’d like to discuss your specific investment strategy and objectives.