Updated: Mar 15
Wow, how times have changed…
My mentor was a Chartered Financial Analyst (CFA) charter holder and managed money with literally zero constraints. His clients were concerned with one thing, and one thing only – making as much money as possible.
Obviously, there are still hedge fund strategies out there targeting maximum return; however, they are few and far between. Whether this is natural phenomena or a product of increasingly efficient markets is up for debate.
Personally, I would argue that younger generations not only lack the risk tolerance required to lever up a portfolio of individual stocks and options, but they also invest with a sense of purpose. Said purpose is often not to simply make as much money as possible; rather, many younger investors would prefer to invest in industries and companies that align with their values and beliefs.
The pragmatic side of me thinks this is a mistake, but the other side of my brain (which I rarely use when investing) really appreciates this dedication to core values. Effectively, the sensitive investor is subscribing to the old adage of “putting your money where your mouth is.” This is more than can be said for most people in leadership positions in this country. Politicians out there, I’m looking squarely at you.
When viewing investing through the lens of “total return,” the only thing that really matters is making money. Interestingly enough, I only have a handful of clients that actually opt to invest that way. The vast majority of people I deal with not only want, but NEED, risk management. I’m not talking about insurance and annuities here. That is a whole separate topic deserving of its own post. I’m talking about broad diversification and active trading to minimize risk.
I have totally accepted the need to manage volatility for clients to provide returns that are in line with a long-term goal while taking the least amount of risk to reasonably achieve the goal. I actually encourage this type of investing because it has been my experience that clients that are comfortable with their strategy have no reason to question you or search for another money manager.
Total return is generally not that important to most people, and that is the way it should be. That being said, I have never been a big proponent of socially responsible investing. Not because I lack empathy, but because I have always felt a constrained portfolio is an inefficient portfolio.
The irony lies in the fact that many investors end up feeling better about their investment strategy knowing that their portfolios align with their beliefs. Whether someone is environmentally sensitive, health conscious, or anti(whatever), he or she will feel better about themselves and the world around them, knowing they are supporting industries they believe in.
As a result, I have noticed an important similarity between my average client and many younger investors: People want to feel good about what they invest in.
Providing this kind of reassurance has been the most rewarding aspect of my career. Beyond that, my truly bespoke investing style has always allowed for client input and preferences.
Now let me give you a hypothetical scenario: Imagine you had a friend, who was a lifelong smoker, die of lung cancer. You, not surprisingly, may not want to own any tobacco stocks. Obviously, I would respect and oblige this request. Could you miss out on higher dividends and lower volatility in your portfolio because of this strategy? Of course you could. Would you care? Probably not! You might actually feel better about your portfolio because it aligns with your values and beliefs.
I have a laundry list of examples just like the preceding one, yet I never gave much thought to the socially responsible needs of younger generations. Ultimately, we are all the same. We all (most of us at least) want to feel good about who we are and what we give and take from society.
As a money manager and advisor, I simply want to help people in whatever capacity they see fit. Although I think I may have more efficient ways to help clients achieve goals, how someone feels about their walk through life is far more important than the ultimate endgame.
Final Thought: The end doesn’t always justify the means, and rarely do two individuals champion the same means.
Any opinions are those of Alexander Leonida and not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. All investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.