20. How can I reduce risk?
We attempt to identify, understand and address risk as part of our fiduciary responsibility to our clients and as part of our overall commitment to sound business management.
Foundation Financial’s underlying goal is to provide a good risk-adjusted return in biblical values stocks. We attempt to increase risk-adjusted return in four ways: (1) choose good stocks of growing companies with businesses and operations that are consistent with biblical values; (2) diversify the portfolio based on S&P economic sectors to reduce short-term price volatility, the most widely cited measure of risk; (3) offer three asset-allocated portfolios to help meet the needs of investors with different risk tolerances for further risk reduction; and (4) avoid market timing attempts in order to: (a) benefit from good stock selection and favorable long-term market trends, and (b) avoid excessive transactions costs.
In addition, we seek to provide good education about the market and our investment approach. We want to anticipate and overcome the natural human tendency toward: (1) fear – sell when stocks are low, fearing even greater losses, and (2) greed - buy when stocks are high and seem likely to go still higher, and (3) the urge to get even by selling when disconcerting losses have been recouped. FFI is committed to the discipline of long-term investing, such as by being fully invested within the sector diversification guidelines of its investment process. We avoid market timing, based on studies showing that it does not work consistently.
Risk reduction also includes attention in the following areas: (1) Poor Bookkeeping or Theft – FFI uses well-known custodians who are insured, handle all paperwork related to the portfolio securities for the client and handle securities and cash; FFI manages, but has NO access to the securities or cash; (2) Transactions – FFI chose BridgePortfolio, which administers about $1.7 billion in assets, to oversee the transactions by the custodian and reconcile the bookkeeping; and (3) Investment Decisions – FFI is obligated to follow the guidelines in its ADV and elsewhere on this web site concerning its investment management so that clients own a good portfolio of stocks in fine companies.
The client is always free to assume management of his or her portfolio and/or choose another manager with no penalties from FFI. This freedom of investor choice and the direct stock ownership of this managed securities portfolio of fine companies are, in our view, the best way to address the many aspects of investment and non-investment risks.
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