Managing Investor Expectations with Dan Cupkovic

It’s interesting that in many of the episodes we’ve done to date, we touch on different facets of investor behavior and financial literacy. We didn’t necessarily plan it that way, but current markets and volatility have set the perfect backdrop to review the subject from different perspectives.

Financial literacy is a broad topic and I believe understanding investor behavior, namely your own propensity for bias is an important aspect of it. If you are a financial advisor, it should be a prerequisite for managing money and setting client expectations.

In this episode of Trends with Benefits I speak with Dan Cupkovic, Director of Investments at ARGI Investment Services about how his firm is helping clients navigate markets and their own psychology.

Revisiting Risk Tolerances

Many financial advisors will use some form of a risk tolerance questionnaire and an investment policy statement which is the rulebook for how money will be managed for clients. As you may imagine, after a month like March 2020, where the S&P 500 lost 33.79%¹of its value in a matter of 23 days, the fortitude of even experienced investors was challenged.

It’s a good time to revisit the volatility or risk that you are really able to handle. After a decade-long bull market with relatively low volatility, expectations for future stock returns have understandably been higher.

Building Portfolios with Investor Behavior in Mind

In traditional approaches to portfolio construction an advisor may mix stocks, bonds and cash in a particular proportion such that the portfolio’s expected return and volatility match an assessment of the investor’s tolerance. Often, it’s a singular portfolio expected to carry you through to your goals and diversified enough to manage the bumps along the way.

Dan takes a slightly different approach to portfolio construction that breaks up the portfolio into time-and risk-dimensioned buckets. He’s found it to be a helpful approach to protect investors from themselves (my words) and to facilitate a better dialogue with clients.

Working with investors or managing your own emotions during times like these are tough, but it’s helpful to know that we (in the historical context) have seen crises like this before. The trick is not to psych yourself out. Have a plan, check your emotions and stick with it.

Trend or Fad?

Listen for Dan’s take on elbow bump greetings, ESG, smart beta and distance learning.