A Conversation with EP Wealth Advisors Director of Portfolio Strategy - Adam Phillips, CFA®, CFP®
Often quoted in major national media, Adam is a Chartered Financial Analyst (CFA®), a CERTIFIED FINANCIAL PLANNER™ (CFP®), and has been included on the Forbes Next Gen Best-in-State Wealth Advisors 2019 list. He is a member of the CFA Society of Los Angeles and the CFA Institute. Adam helps establish asset allocation strategy as a member of the EP Wealth Investment Committee, which supports all EP Wealth Advisors and their clients. The Committee’s top-down approach to portfolio construction begins with an outlook on the economy’s likely direction, followed by the implications for different economic sectors and asset classes. This culminates in strategic selection of the individual stocks, bonds, mutual funds or other investments deemed most appropriate for each individual client’s portfolio.
Different Types of Risk
It’s axiomatic in investing that greater returns entail greater risk. And there are multiple types of investment risk. These include:
- Inflation risk, which erodes the value of assets over time
- Market risk, which directly affects asset prices
- Credit risk, which can depress bond valuations while raising yields
- Interest-rate risk, tied to monetary policy, which also impacts bond valuations
How the Bond Market Differs from the Stock Market
Unlike stocks, buying bonds in smaller lot sizes—for example ten bonds—can cost you more per bond compared with what you might pay if you bought a lot size of fifty or a hundred bonds. This is why when we construct a bond portfolio, we typically buy large enough lot sizes to save on price.
Managing Risk with Diversification
The reason we see a lot of diversified portfolios is that you want to control the two risks by reaching for additional yield at the margin. So you have stock to give you better odds of having that real rate of return you need—”real” meaning adjusted for inflation, so you have an opportunity for growth. But you can offset some of the greater downside risk inherent to stocks by having some of your portfolio in bonds. However, you need to bear in mind that bonds themselves must balance the risk of inflation and the risk of rising interest rates that can depress their value. Ultimately, it’s really about understanding what you own and why you own it, and having a diversified portfolio.
How Can You Benefit from a Strategic Approach to Investing?
With a staff of accredited professionals and access to sophisticated analytical tools, EP Wealth offers a comprehensive range of services to help you invest with greater insight, as well as develop a holistic wealth management strategy. To discuss your finances and investment goals, we invite you to contact one of our advisors.
This is #3 in the Informed Investor “How to Build Your Investment Portfolio” series. Other topics include Asset Allocation, Why We Diversify, How to Buy a Stock, How to Buy a Bond, Concentrated Positions, etc. For more information on our investment process, check out our investment management page or ask for a Portfolio Review.
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