Downside protection is provided at Mader Shannon, where we believe that an effectively implemented active management strategy can help clients achieve reliable upside participation. By dampening the volatile swings in the market, our strategy seeks to provide both a sustainable long-term rate of return as well as peace of mind to our clients.
Downside protection on an investment occurs when the investor or fund manager uses techniques to prevent a decrease in the value of the investment. It is a common objective of investors and fund managers to avoid losses and many instruments can be used to achieve this objective. The use of options or other hedging instrument in order to limit or reduce losses in the case of a decline in the value of stock is very common.
Of course, it is always important to remember that when stocks go up and down, the increases and decreases in price only represent gains and losses on paper. An investor has not lost anything until they sell a share and accept the low price in exchange for giving up the share. Investors may choose to wait out a period of low performance, but fund managers looking for downside protection are usually more pressed for time.
While there are many operational remedies that can provide downside protection, the two most important are: developing an investment strategy that is appropriately calibrated to your risk tolerance and financial goals and; hiring an investment manager that can consistently deliver on the needs that your financial situation calls for.
For more information about downside protection, call Mader Shannon at (800) 838-9988.