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Investment Strategy

Red Hook’s core strength is investment advice. Every wealthy family’s assets have a history and often a good story. Our role is to put these important assets into a personalized, coordinated plan based on the family’s values, goals, relationships, and intended legacy. The first thing that we do for a new client is organize existing assets to evaluate for risk and diversification. We discuss risk, return, and time horizon to establish a risk profile. From there, we create a thoughtful plan, considering any required transition and taxes.

Portfolio Health: Diversification and Liquidity

Red Hook’s core investment beliefs are that a family’s wealth should be well-diversified with much of it liquid. We review each client’s portfolio for both these factors.

  • Diversification
    Wealth is typically created through concentrations of risk through ownership, often a private entity (exceptions are lottery, gambling or personal talents such as acting or music). Once that wealth is created, most of it should be invested to preserve it and earn a reasonable return in excess of inflation. The best way to preserve wealth is to reduce risk by diversifying across asset classes and regions.
  • Liquidity
    Having wealth that is not available is a limit to that wealth. Being able to sell something on a daily basis into a large market where prices are generally fair is worth a lot. The converse, having to sell something, which is idiosyncratic and does not have daily liquidity and fair prices, can be very painful.

Costs: Low Fees and Low Taxes

There is nothing better to increase wealth than keeping your costs low. Fees and taxes can be a significant drag on returns. This means paying advisors for the value they provide and minimizing taxable gains or income, when possible. More specifically, with respect to stocks and bonds, not overpaying for stock picking or market timing, and being cognizant of taxes when rebalancing or raising funds.

Stocks and Bonds: Diversification and Thoughtful Active Management

Red Hook believes in broad diversification of both stocks and bonds to protect wealth and smooth out long term returns. In taxable accounts, we do our best to diversify around any legacy positions.

  • Stocks
    Stock portfolios should be broadly diversified using Mutual Funds and ETFs. Red Hook believes the academic research that suggests small, high value, and high quality companies outperform the market average over time. These segments of the market, known as factors, are risker than the market average, but they are risks worth taking.
  • Bonds
    Bond portfolios tend to be high quality and short in duration. Most of the return of a stock and bond portfolio should come from stocks.
  • Liquid Alternatives
    Many hedge fund strategies are available in mutual funds. Red Hook includes these low correlated alternative investments in some clients’ portfolios. The allocation to alternatives typically comes out of fixed income, since they have low volatility and a higher rate of return than bonds. These investments differ from typical private hedge funds in three important ways: they have daily liquidity, they are entirely rules-based, and they have lower fees, typically less than 2% and no performance fee.

Illiquid Private Investments: Appropriately Allocated and Well Vetted.

Most families have investments in illiquid assets. The most prevalent example is the equity in a home, but there are many other ways families hold illiquid investments, including partial ownership in a private company and investments in real estate deals, venture capital funds, hedge funds, or early-stage companies. At Red Hook, these investments are an integral component of a family’s risk assessment, which informs any necessary transition. We help families understand the appropriate allocation for these types of investments and evaluate and make introductions for future investment opportunities.