Tag Archives: Optimiser

Capital preservation: more than a strategy

People out from investments usually think that this business is easy and high returns are the common rule. If you say: “I invest”, then they look at you as a rich person, when you probably try to avoid a lost of purchasing power caused by inflation. That is usually the most conservative strategy, but the idea behind that behaviour is capital preservation.

Capital preservation is defined as a conservative strategy that tries to avoid the loss of value of your investments. Some investors are just quiet if their money does not decrease, but this little ambition has an enemy: inflation. If the financial goal reduces only to that narrow meaning of capital preservation, they will surely lose purchasing power in the long term. That’s why this strategy is recommended for safe short-term investments, as bonds or certificates.

However, capital preservation means something else, because it is behind every investment strategy. Whether it is more aggressive or more conservative, it does not mean that the goal behind the scene will not be the same: to keep at least the same as we invest and keeping the same purchasing power. Possibly, someone argues that the more aggressive portfolios are designed to obtain the highest return accepting volatility, but no investor is so fool to accept losing their money without a B-plan.

This B-plan to preserve the capital is rebalancing. When an investor receives alerts from their system, he has to decide when to change his strategy. Regular investors are not traders, but they prefer to invest in the long-term. That’s why these investors have to avoid panic in certain periods when markets are bearish or react negatively due to any external reason (e.g. Brexit or similar). Investors have to look at the long term and analyse with their tools the real effect over their strategy and if they have to rebalance their portfolios. What for? First of all, to preserve their capital; secondly, to serve their strategy (more conservative or more aggressive).

In other words, as the main goal for companies is surviving in the markets, the main goal for an investor is preserving his capital. Returns will come, higher or lower, but these will be the second step. Alerts, optimising modules and bootstrapping systems (as T-Advisor has) are the tools to be successful for it.

The tools that you need to invest efficiently with your portfolio

Think about that you have a portfolio. Fine, you have organised your financial target into a structured composition of stocks, bonds or any asset that agrees your investor profile. However, you are a motivated investor and have interest in monitoring, improving, analysing… and you do not find the right tools to do it.

What kind of tools do you need? First of all, you need a platform that lets you easily create your portfolio with simple steps and implement your assets from your own Excel file or directly on the system. It is important that you can select properly your profile since the very beginning.

T-Advisor tools: screen to create your portfolio

Once you have created your portfolio and included the assets, you need to monitor and analyse it. It is not only about different timeframes for performance or volatility, but also an analysis of the diversification and the risks. As investor, you should take into account that one of the main goals is capital preservation. This means that a right investment strategy should outperform the benchmark in bull periods and have substantially less losses in bear periods. Diversification benefit, which assets contribute more to risk or a comparison with the composite benchmark (or smart benchmark, as it is denominated in T-Advisor) are useful tools for it.

T-Advisor risk analysis screen

This analysis should also include a graphical analysis of the allocation to understand the risk concentration in different concepts.

T-Advisor asset allocation analysis

And finally, what refers to analysis and monitoring, you should have access to a kind of scoring to perceive the quality of your portfolio and some suggestions to improve it.

T-Advisor scoring and suggestions screen

In the case of you perceive that your portfolio needs an improvement, your platform should include a tool to analyse where the troubles come from and optimise the results. The optimisation has to propose an efficient frontier for the portfolio allocation and a proposal of what changes you should implement.

T-Advisor optimiser tool

Efficient frontier optimisation in T-Advisor

And, last but not least, you need an alert system to react when there are deep movements in the markets that affect your portfolio. Your platform should also provide you a system to set the alerts depending your own needs.

Alerts setting in T-Advisor

T-Advisor is your alternative to create, monitor, optimise and modify efficiently your portfolio in a self-directed way. There are many platforms, but they usually have less tools or under payment. You can choose T-Advisor for free to feel the investment experience and control your finances on your own.