At Natixis, John Hailer spearheaded initiatives that supported a wider evolution of investment portfolio construction. Currently, he maintains commitment and belief in this strategy.
Building an investment portfolio that balances long-term returns with short- and long-term risk and volatility is one of the most significant challenges for investors. But what does it take to create such a portfolio? According to John Hailer, Chairman of Diffractive Managers Group, the fund arm of Boston-based 1251 Capital Group, the key lies in true diversification.
What is Diversification?
Diversification isn’t just about returns; it’s about incorporating short- and long-term risks and volatility. Portfolios that can withstand the short-term ups and downs of markets keep more investors invested for the long-term, which is one of the biggest drivers of long-term success. This approach is supported by Hailer, who maintains his belief in the strategy, spearheaded by him during his tenure at Natixis.
“Every investor knows the mantra of patience, long admonished to avoid trends and not follow the crowds. But then what? Having a long-term vision for your investments isn’t enough,” says Former CEO of Natixis John Hailer.
It’s the industry’s responsibility to help investors build portfolios that can weather market volatility and ensure they have the security they need later in life. Hailer believes that portfolios need to be built on the Prudent Man rule, a simple investment philosophy that prioritizes the safety of an investor’s principal with a view to the permanent disposition of their funds.
“This was essentially putting risk before return,” said Hailer. “The investment industry moved away from this, and frankly, lost its way a bit in the process.”
Financial Crisis Paves The Way for Change
The result of this approach was evident during the 2008 financial crisis when investors faced the biggest market downturn in a generation. Portfolios plummeted, savings were wiped out, and retirement plans were seriously curtailed. Hailer notes that if portfolios had been properly diversified, they would have shown much more resilience.
The problem, as finance expert John Hailer explains, is that too many investors have been sold investment strategies with too little regard for how they fit into the rest of their portfolio. Fund classification systems, though well-meaning drivers of transparency, can also pose a challenge for individual investors seeking a well-constructed, properly diversified portfolio.
“Rating systems are great for transparency and great for investors,” said Hailer. “But investors need financial professionals to help them utilize them.”
For example, consider a portfolio filled with the most highly rated funds across each category. Sound good? Not so fast. Such a portfolio makes two big mistakes, Hailer said. First, it’s built with returns as the primary goal rather than risk management, and second, it ignores the importance of asset allocation.
John Hailer Suggests Steps to Balance Risk
So, how can investors build diversified portfolios that balance returns and risk? Natixis’ John Hailer suggests several key steps:
- Take a step back: Focus on building a diversified portfolio with a long-term view. Don’t chase hot stocks or try to time the market.
- Start with asset allocation: Define your investment goals, risk tolerance, and time horizon to create an asset allocation strategy that fits your needs.
- Build a portfolio with an appropriate mix of asset classes: Diversify across asset classes to manage risk.
- Look beyond performance: Don’t get caught up in chasing returns or selecting funds based solely on their past performance. Consider their risk profiles, fees, and their correlation with other investments in your portfolio.
- Stay disciplined: Stick to your investment plan even when the market goes through ups and downs. Rebalance your portfolio periodically to ensure it remains in line with your goals and risk tolerance.
Benefits of Diversification
Building a diversified investment portfolio takes time, patience, and discipline. But with the right strategy and professional guidance, investors can create portfolios that help them reach
The right investment professional can help investors navigate the complex terrain of ratings, fees, and investing strategies, and find the right blend of assets to achieve their financial goals.
At Natixis Investment Managers, where John Hailer served as CEO for six years, the focus was on building multi-asset portfolios that combined active and passive strategies in a way that maximized risk-adjusted returns while maintaining diversification.
“Natixis was one of the few firms to build and offer diversified portfolios that weren’t just simple asset allocations, but instead combined active and passive strategies in a way that delivered true diversification,” said Hailer. The approach has proven successful, with Natixis’ multi-asset portfolios regularly outperforming their benchmarks and providing investors with a smoother ride along the way.
A Well-Defined Investment Process
But it’s not just about choosing the right funds or asset classes. It’s about having a well-defined investment process that puts risk management at the forefront.
“Risk management is critical to long-term investment success,” said Hailer. “It’s about making sure you’re not taking on more risk than you need to in order to achieve your investment goals.”
This means understanding not just the individual investments, but how they fit together to create a portfolio that can weather different market environments. It means staying disciplined in the face of market volatility, and having a plan in place to rebalance when necessary.
“Investors often let emotions drive their investment decisions,” said Hailer. “But the best investors are those who can stay disciplined and stick to their long-term investment plan.”
This is where the role of the investment professional becomes critical. By working with a financial advisor who understands their goals, risk tolerance, and time horizon, investors can create a customized investment plan that is designed to help them achieve their financial objectives.
“Investing is not a one-size-fits-all proposition,” said Hailer. “It’s about finding the right strategy for each individual investor, and then having the discipline to stick with it over the long term.”