What a portfolio could lose matters as much as what you hope it will earn. Our RiskFirst® approach begins with that question, then connects portfolio design and ongoing review to your individual risk tolerance.
Labels such as conservative, moderate, and aggressive can mean different things to different investors. We believe a more useful conversation starts with a specific concern: the decline in portfolio value you are willing and financially able to accept.
Drawdown risk describes a portfolio’s decline from a peak value to a subsequent low. It puts the discussion in terms of loss of capital rather than relying on a broad investment label. Our focus is on understanding that risk before choosing how to invest.
That is particularly important when your portfolio helps support your lifestyle. You have your own timeline, spending needs, and responsibilities. Those realities should shape the investment conversation rather than assuming you can wait indefinitely for a recovery.
A loss and the gain needed to recover from it are not equal percentages. After a decline, the recovery starts from a smaller base. The illustration below shows that arithmetic alone. It is not a forecast, investment result, or representation of any client’s experience.
| Portfolio decline | Gain needed to recover |
|---|---|
| 10% | 11.1% |
| 20% | 25.0% |
| 30% | 42.9% |
| 40% | 66.7% |
| 50% | 100.0% |
Withdrawals add another consideration. Taking money out after a decline leaves less capital invested to participate in a recovery. The effect depends on the amount and timing of withdrawals and subsequent returns. This is one reason we consider drawdown risk alongside income needs, not as a separate investment statistic.
For someone nearing retirement, that connects portfolio management with the timing of spending and other income sources. Our retirement planning checklist can help you prepare those questions for a personal discussion.
We use a process of setting expectations, implementing investments, and measuring success. Each stage keeps the discussion tied to your risk tolerance and the financial life your investments are intended to support.
Begin with your goals, time horizon, and tolerance for drawdown. Discuss what a decline could mean in practical terms, especially if you expect to take distributions. A defined risk objective gives the conversation a clearer reference point than a general label.
The objective is a target, not a maximum loss that can be assured. We discuss that distinction before implementation so expectations include uncertainty rather than a promise about future markets.
Engineered Risk-Budgeted portfolios combine investment approaches with different roles. The brochure describes strategic market exposure, actively risk-managed defensive strategies, and private-market investments, where appropriate for the investor.
The aim is to diversify by asset class, investment style, and strategy purpose while seeking to manage drawdown risk. Portfolio construction and adjustments remain subject to investment risk and suitability.
Review the portfolio in relation to its objectives and your circumstances, not just a recent return. RiskAlign® ranges provide a framework for discussing potential variability over a six-month period.
These model-based projections are hypothetical and depend on assumptions. Actual results may include more loss or more gain than shown. Reviews are a chance to revisit expectations, not evidence that an outcome has been guaranteed.
Our brochure describes a multi-style approach in which each allocation has a reason for being in the portfolio. Strategic investments seek market exposure. Defensive strategies seek to respond to market downturns. Private-market investments may add a different source of exposure where suitable.
Quantitative research informs portfolio decisions and potential defensive repositioning as drawdown risk changes. This does not mean that a portfolio will avoid every decline or that a defensive adjustment will always work as intended. Diversifying styles and strategies cannot eliminate investment loss.
Private-market investments involve additional risks, including illiquidity, valuation uncertainty, limited transparency, and potential loss of principal. They may not be appropriate for every investor or every account. Access to money, investment terms, and the broader portfolio all belong in the suitability conversation.
Before considering any strategy, ask how it works, what it costs, what could go wrong, and how it fits your financial needs. Read the complete brochure and its Important Disclosures and our Form ADV for further information about risks and advisory services.
No. A drawdown target is an investment objective, not a guarantee, stop-loss promise, or insured floor. A portfolio can lose more than its target, and no investment strategy can guarantee a profit or protect against loss in declining markets.
No. The relevance of drawdown risk depends on the investor’s circumstances, including time horizon, financial goals, ability to absorb loss, and withdrawal needs. Retirement makes those questions especially tangible, but the conversation begins with the individual rather than an age category.
RiskAlign® provides a model-based range of potential outcomes over a six-month period for discussion. It is hypothetical and depends on assumptions that may not hold. Actual results can fall outside the range, including larger losses, and the range is not a guarantee of future returns.
Not necessarily. Account holdings and allocations can vary with suitability, account minimums, timing, market movement, advisor discretion, and other factors. Portfolio design should be discussed in relation to the investor’s circumstances, not treated as a universal allocation.
RiskAlign® is produced by Redwood Investment Management, LLC (“Redwood”). Shrier and Redwood are unaffiliated entities.
RiskFirst® is a registered trademark of Redwood. Shrier Associates LLC and Redwood are not affiliated.
Talk with our team about drawdown risk, your income needs, and the role your portfolio plays in your life.