In Perspectives

In the investment world, risk generally is related to uncertainty. It refers to the possibility that you might lose your investment, or that an investment will yield less than its anticipated return. Every investment carries some degree of risk because its returns are unpredictable. The more unpredictable its returns—the riskier the investment is considered to be.

Within this framework, there are multiple ways of viewing risk. Modern Portfolio Theory (MPT), the basis of most portfolio planning processes, views risk as being an evenly distributed set of returns (standard deviation) from an anticipated return (mean). However, a concept sometimes referred to as Post-Modern Portfolio Theory (PMPT) also has begun to receive attention. It focuses primarily on downside risk: the possibility of loss, or of not meeting a specific investment target; i.e. the statistical likelihood of a negative outcome.

There are also various behavioral studies that assert losses have a more emotional impact than an equivalent amount of gains. For example, one would think that an investor would be equally satisfied with an investment that appreciated $5,000 to one that gained $10,000 and then lost $5,000. In both situations, the end result was a net gain of $5,000.  However, despite the fact that the outcome was the same, most investors would value the gain of $5,000 over the higher initial gain combined with a subsequent loss.

While not grounded within PMPT or any behavioral theories, the investment approach of Legacy Trust has consistently placed strong emphasis on managing downside risk via our portfolio construction and manager selection process.  We rely on stochastic modeling of investible asset classes that are not perfectly correlated, generating thousands of potential outcomes that determine the probability of realizing many different investment results, especially the probability of outcomes falling below the anticipated rate of return.

In manager selection, we obviously look at the historical performance of the strategy relative to its benchmark and peer group, yet closely examine the underlying characteristics of the performance record – especially the ability to protect assets in periods of negative returns.  An additional review of the soundness of the approach and depth of the firm’s investment team provides confidence that the performance characteristics, especially the downside capture rate, can be repeatable.
The upward linear trajectory and absence of meaningful volatility in the markets of the past three years has created complacency in certain corners of the investing public.  Any experienced advisor will remind all that turbulence will eventually return and the ability to preserve accumulated value will be the highly sought attribute of professional investment managers.

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Legacy Trust and Your Right to Financial Privacy

At Legacy Trust we have established policies and practices that respect the financial privacy of all individuals who use our trust company. We believe it is critical to comply with the laws and regulations designed to secure your financial privacy. Your relationship with us as our client is very important to us, and we want you to understand our policies and practices about handling your information.

This Policy applies to you – This Policy applies to our relationships with individual clients who inquire about or obtain products or services from us for personal, family and household purposes.

Strict security measures – We take the security of information very seriously. We have established security standards and procedures to prevent access to client information. We maintain physical, electronic and procedural safeguards to guard client information.

Limited employee access – We have established procedures to limit employee access to information to only those employees with a business reason for accessing such information. We educate our employees about the importance of confidentiality and client privacy. We take appropriate disciplinary measures to enforce employee responsibilities regarding client information.

Why we collect information – We collect information about you to:

  • accurately identify you;
  • protect and administer your records, accounts and funds;
  • help us design or improve our products and services;
  • understand your financial needs;
  • save you time when you apply for new products and services; offer you quality products and services; and comply with certain laws and regulations;

We collect information – We collect and maintain your personal information so that we can provide investment management and other services to you. The types and categories of information that we collect and maintain about you include:

  • Information we receive from you to open an account or provide investment advice or other services to you (such as your home address, social security number, telephone, financial information and investment objectives).
  • Information that we generate to service your account or from our transactions with you (such as account statements and other financial information).
  • Information on your transactions with nonaffiliated third parties.

We have established procedures so that the financial information we collect is accurate, current and complete. We are committed to work with you to promptly correct any inaccurate information.

Our selective sharing of information – In order for us to provide investment management and other services to you, we do disclose your personal information in very limited instances, which include:

  • Disclosures to nonaffiliated companies as permitted by law, including those who help us service your account (such as providing account information to brokers and custodians).
  • Other limited disclosures as permitted by law, for example, required reports to government entities.

We do not share your information with third parties for marketing purposes. We do not sell your information.

Former clients – If you end your relationship with us, we will continue to adhere to the privacy policies and practices described in this notice.

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USA PATRIOT Act

Important Information About Procedures For Opening A New Account

To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify and record information that identifies each person who opens an account.

What this means for you: When you open an account, we will ask for your name, address, date of birth and other information that will allow us to identify you. We may also ask to see your driver’s license or other identifying documents.

We apologize for any inconvenience this may cause; however, federal law prohibits us from waiving these requirements.

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