Investment Strategy Models | Cinergy Financial

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Investment Strategy Models

Investment strategy models are often derived from an investment philosophy, which is a, “set of beliefs and principles that guide an investor’s decision-making process.”1 Examples of investment philosophies include value investing, which focus on shares that an investor believes are fundamentally underpriced; growth investing, which targets companies that are in a growth or expansion phase; securities that offer a return in interest income; fundamental analysis, which rely on political and economic conditions; and technical analysis, which relies on data to reveal patterns in trading activity.2 Although there are many investment strategies, the most popular has been the 60/40 portfolio, which means that you invest 60% of your money in stocks and 40% in bonds. While popular for many years, “analysts from major firms like Bank of America, Morgan Stanley and JP Morgan have all proclaimed the death of the 60/40 rule in recent years.”3 The 60/40 portfolio offers limited diversification, which is why I spent years developing my multi-asset class model to help investors realize the potential benefits of diversification.

The REALM Model

The main benefit of a multi-asset class model is that it potentially helps manage risk much more effectively than the 60/40 portfolio. You see, the 60/40 operates on the principle of negative correlation. In other words, if stock prices went down, bond yields should move up to offset your losses. In contrast, my REALM model utilizes alternative assets that are either not correlated to the stock market, or have low to moderate correlation. This could result in potentially better risk management. Another benefit of the REALM model is its flexibility and customizability. It is flexible in the sense that you can add other alternative assets once they become available. It is customizable in the sense that it does not use a “one size fits all” approach.

The REALM strategy contains Alternative Investments which are speculative by nature and have various risks including possible lack of liquidity, lack of control, changes in business conditions and devaluation based on the investment, the economy and or regulatory changes. As a result, the values of alternative investments do fluctuate resulting in the value at sale being more or less than the original price paid if a liquid market for the securities is found. Alternative investments are not appropriate for all investors. No investment process is free of risk, no strategy or risk management technique can guarantee returns or eliminate risk in any market environment. There is no guarantee that this investment model/process will be profitable. Diversification does not guarantee profit nor is it guaranteed to prevent losses.

Investment Risk Management Strategies

Risk is one of those unavoidable things in investing. There are two broadly defined investor types. There are some investors who focus almost exclusively on returns and how fast they can grow their money. This type of investor is always finding ways to protect herself against the inevitability of a market correction or a bear market by using investment risk management strategies. For those who focus on risk, there are risk investment strategies that may be very helpful.

  • One strategy to help you manage risk is to reevaluate your portfolio diversification and asset allocation. To further diversify, investors may want to think beyond stocks and bonds.4
  • Another risk management strategy is known as rebalancing. The process of rebalancing is to keep a portfolio well-diversified. You see, over time, different assets have different returns or losses. This might mean that you let go of those investments that have appreciated in value while buying investments that are declining in value.
  • Another risk investment strategy is to invest consistently. In other words, don’t over react if your investment is declining. If you are in this for the long-term, US Stock Markets can rise and decline over time so it’s important to understand your investment time horizon.
  • You can also get an investment risk analysis. This is also known as your risk profile. Investors are generally classified as aggressive, moderate, or conservative investors. You need to know which type of investor you are.

Retirement Plan Analysis

A retirement plan analysis is quite simply an examination of your current financial plan. It is designed to determine if you are on a path to realize your goals for retirement. Part of the retirement plan analysis is to check if you have a 401(k) plan and if your contributions are on track. Other areas of a retirement plan analysis include when you can comfortably retire, your Social Security benefits, investment strategy, as well as budget and savings. Your investment strategy model is also examined to determine if you are on the right path to achieve your retirement goals. For example, an investment strategy model that, “reduces risk by allocating investments across various financial instruments, industries, and other categories,”5 might be something you want to explore if you don’t have a diversified approach.

Retirement Planning Advisor

In my opinion, the most important aspect of money management is the retirement planning advisor. In both my blogs and Wall Street Journal best-selling book, Redefining Financial Literacy, I’ve always stressed the importance of sitting down with a qualified and experienced financial advisor. One of the reasons is that our world is far more complex today than ever before. We live in a Google-ized world where we skim for information, which leads to a false sense of knowing. One of the unwitting consequences of having too much information is the Dunning-Kruger effect, which is the tendency of people with limited knowledge in a specific field of study to, “reach mistaken conclusions and make regrettable errors, but their incompetence robs them of the ability to realize it.”6 When there is simply an avalanche of information with little to no time to absorb a fraction of it, you need to consult with a qualified and experienced financial planner who can help you plan for your retirement.

Cinergy Video Link Why Managing Risk Important

Financial Risk Management Strategies

Financial risk management strategies is a process of assessing, managing, and mitigating losses. This process is used by large corporations as well as financial planners to potentially minimize risk. One very important feature of financial risk management is to reduce the degree of uncertainty in investment decisions. Fund managers for large institutional investors or university endowments quantify the potential for losses as a result of investment strategies. Financial risk management strategies are connected to the concept of return on investment. For example, the degree of risk for a U.S. T-bill is close to zero while the risk for emerging-market equities is very high. The goal, of course, for fund managers and financial planners is to minimize risk as much as possible. One way to potentially reduce risk is through diversification, which means, “dividing your investments among a variety of assets.”7 Please remember that all investments have risk and risk management strategies are designed to help you reduce risk.


1. Adam hayes, “Investment Philosophy,” Investopedia, July 30, 2021. https://www.investopedia.com/terms/i/investment-philosophy.asp

2. Ibid

3. Go Banking Rates, “The 60/40 Rule is Long Dead – Modern Times Call for New Investment Strategies,” gobaningrates.com, June 17, 2021. https://www.gobankingrates.com/investing/strategy/60-40-rule-long-dead-modern-times-call-for-new-investment-strategies/

4. SoFi Learn, “6 Investment Risk Management Strategies,” sofi.com, September 10, 2020. https://www.sofi.com/learn/content/investment-risk-management/

5. Nick Lioudis, “The Importance of Diversification,” Investopedia, January 29, 2021. https://www.investopedia.com/investing/importance-diversification/

6. Psychology Today, “Dunning-Kruger Effect,” psychologytoday.com, Retrieved August 15, 2021. https://www.psychologytoday.com/us/basics/dunning-kruger-effect

7. Financial Fitness, “Diversifying your Portfolio: What it is and why it’s Important,” cashay.com, January 27, 2020. https://www.cashay.com/diversifying-your-portfolio-why-its-important-152159779.html

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