Asset Protection 101: Diversification strategy gone wrong

The consensus among most financial professionals is that asset allocation is one of the most important decisions that investors make. However many people mistake asset allocation for diversification. This is the definition from the SEC:

The Magic of Diversification. The practice of spreading money among different investments to reduce risk is known as diversification. By picking the right group of investments, you may be able to limit your losses and reduce the fluctuations of investment returns without sacrificing too much potential gain.

Asset Protection 101: When Buy and Hold Fails

Welcome to our Asset Protection 101 series. With exception to diversification, the industry doesn't like to talk about asset protection because it goes against conventional thinking and the way that most advisors operate. However, one size doesn't fit all clients so we will take on these topics in this series.

Buy and hold refers to an investment strategy in which investors hold on to their stocks for a long period of time regardless of fluctuations in the market. One of the main benefits of a buy and hold strategy is the easiness of the process. It is no surprise that Wall Street pushed this message as they no longer had to make the tough decision to actually protect client assets before a bear market. Lucky for them, the market had a huge secular bull market from the mid-1970's to 2000 as interest rates declined from the mid-teens to single digits and the stock market had an epic run in the 90's culminating in the Internet bubble.

Cost of Not Investing Your Captive Assets

In seven years of offering investment management services to captive insurance companies, we are acutely aware how conservative many captive owners are when it comes to investment objectives and goals.  A cookie cutter "one size fits all" approach does not work when it comes to constructing investment portfolios.  The makeup of a captive insurance company’s portfolio should take into account the type of risk insured, projected loss patterns, and cash needs.  In some cases, captive owners are so risk averse that they choose not to invest and are content to sleep well at night by owning money market funds and cash.  Among captive managers, accountants, and actuaries, quite a few people have asked me, "What is the cost of NOT investing?"

Top 3 Investment Tweets from VCIA 2013

Congratulations to the Vermont Captive Insurance Association (VCIA) on its 28th Annual Conference. It was great to see the more than 1100 attendees, 100 exhibiting companies, and 60 expert panelists that convened in Burlington.

Are your bond assets safe in a rising rate environment?

The bond bull market has been running hard for over 30 years but it appears to be over as long-term rates hit historic lows in 2012. Many investors have never lived through a rising interest-rate cycle and aren’t prepared for a secular bear market in bonds. As you can see in the chart below, the last bond bear market lasted just as long as the current bull.

Rising rates can inflict significant damage to bond assets which are supposed to be the safe side of an investment portfolio. When interest rates rise, the market value of bonds falls and the losses can be substantial.

A Look Inside Captive Insurance Companies' Portfolios

Marsh recently published its 2013 Captive Benchmarking Report, analyzing 886 captives for benchmarking analysis, representing approximately 15% of all captives globally. One key finding is that more than half of the investments made by captive insurance companies consists of loans to their parent companies, a growing trend since the economic downturn of 2008 when captives were heavily invested in equities. The motivation behind intercompany investments with the parent entity or affiliates is to minimize the cost of capital employed in the captive and enhance the parent company's liquidity. Additionally, the parent company has greater control over the captive’s invested assets.

Runnymede Wins Best Customer Service in Investment Management Award

Runnymede Capital Management named Best Customer Service in Investment Management at US Captive Services Awards

Morristown, New Jersey, September 10, 2012 – Runnymede Capital Management (“Runnymede”) has been awarded Best Customer Service in Investment Management at Captive Review’s US Captive Services Awards, an event celebrating excellence in the delivery and management of captive insurance. The event was attended by over 200 captive insurance professionals from across the United States.


Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Runnymede Capital Management, Inc.-"Runnymede"), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Runnymede.  Please remember that if you are a Runnymede client, it remains your responsibility to advise Runnymede, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Runnymede is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Runnymede's current written disclosure Brochure discussing our advisory services and fees is available for review upon request. Please Note: Runnymede does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Runnymede's web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.

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