Anthony Pellegrino | Goldstone Financial Group

It has been a long ten years since the market crash of 2008, and many are still in the process of recovering their lost assets. Now, those in the financial sector have begun wondering whether another severe downturn lurks on the horizon and if there is anything they can do to stop their portfolios from taking catastrophic losses if and when it comes. In this episode, Michael and Anthony Pellegrino weigh in on risk management and provide some tips for what investors can do to protect their assets from financial disaster.

Anthony Pellegrino begins by establishing context, noting that while no one has a crystal ball to provide the date for the next market correction, one is indeed coming – though it is unclear whether the drop will be a relatively manageable 10% or a crippling 50%. However, the average bull market usually lasts for five to six years; ours is stretching on past seven. Some financial professionals, Pellegrino notes, believe that the longer a bull market goes on, the harder the crash that follows will be. However, little of the severity or timing of the coming correction is known for sure.

Goldstone Financial Group, Pellegrino goes on to say, addresses this potential for a downturn by being proactive. The firm’s fiduciaries often engineer a built-in floor or safety net to ensure that its clients aren’t caught entirely off guard when disaster strikes.

But, Michael steps in to say, being in the market will always involve some degree of risk. People need to be cognizant of their situations; if a person is nearing retirement, for example, they probably wouldn’t want to put all of their eggs in a single, risky basket. The portfolio – and its associated risk – needs to fit the person. That said, while an investor can lessen the threat to their assets, they will never be able to remove it entirely. If you truly want to eliminate it, you have to withdraw from the market.

The financial danger is real; as Michael goes on to explain, the worst situation a person nearing retirement can face would be losing their nest egg to a correction after working for several decades to build it. Clients, he stresses, need to protect themselves.

Anthony Pellegrino steps in to elaborate on Goldstone Financial Group’s approach. As he explains the matter, Goldstone does take some of the risks out of its clients’ portfolios. The firm’s fiduciaries can build plans that protect assets from the wilder swings of the market; many implement Tactical Asset Management strategies to ward off risk. With a TAM asset, Anthony notes, wealth managers can continually assess the market and shift too-risky assets into cash when necessary.

Michael Pellegrino takes over once more. The old conventions of investing, he shares, relied more on a static “buy-and-hold” approach wherein investors would purchase an asset and hope that its value would rise over time. TAM is more dynamic and mathematical; portfolio managers use algorithms to assess risk and shift into more defensive or cash positions to minimize the impact of significant draw-downs.

However, shifting to cash isn’t the only defensive strategy wealth managers can implement. Anthony Pellegrino will also occasionally include a fixed hybrid annuity into a client’s portfolio; this strategic choice minimizes downside risk while maintaining some upside potential. He does note that he tends to dislike the high fees and limited benefits of most annuities and stresses that he only suggests fixed hybrid annuities because they are highly evolved. They put a floor beneath Goldstone’s clients, he points out, and protect some parts of their portfolios by locking year-to-year gains. A person might not make quite as much during the up years, he finishes, but the relative security of the lock can be well-worth the shortfall in some cases.

Aiming for gains, the two agree, shouldn’t come at the expense of your nest egg.