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    Safety, Liquidity, and Yield: Managing Your Investment Portfolio

    Staying safe in the workplace is crucial for any company, but the word safe doesn't always have to have the same meaning. For many financial institutions, safe doesn’t mean placing a lid on your coffee so that it doesn't burn you—it can mean so much more than your typical safety measures. Investment officers always have their financial institution’s portfolios safety top of mind. The main goal of an investment officer is to earn desirable market rates while preserving and safeguarding your capital.

    The only way for this goal to be obtained is by managing your investment portfolio with the three philosophical principles of safety, liquidity, and yield. In a time where investment portfolios are growing and loan demands are decreasing, the importance of these three principles is key to the success of all financial institutions.

    Potential Risk

    In order to increase your chances of success with safety and liquidity, it is critical that you implement a well-planned investment policy statement. The key component to a successful investment portfolio is diversification to help you reduce risk. Just because you have a good investment policy in place does not mean that it will eliminate all risk, but a well-balanced portfolio may protect your institution against the rising and falling interest rates that involve risk.

    When you are looking to reduce the burden of interest rate risk, a good way to accomplish this is to diversify your maturities. If interest rates fall, longer-term investments may pay a nice yield and become more liquid in the portfolio with an increased potential for capital gains. If interest rates rise, you could invest the shorter-term maturities in higher interest rates when they become due. Mixing the portfolio with coupons that may rise, whether because the yield is tied to an index or steps up periodically, could protect the overall yield of the portfolio.

    Staying Liquid

    Liquidity--to a company--is like oxygen, and a lack of liquidity is extremely dangerous, even for the healthiest of companies. Knowing the appropriate amount of liquidity your company requires is an absolute must, as it will assist in maximizing yield and reducing portfolio risk. 

    Having the right amount of balance is key so that you don't end up in a situation where your portfolio has too much cash and, ultimately, earns nothing. But, you also do not want to have a cash deficit, as that could lead you to prematurely sell an investment which may result in causing market risk.

    Strategy for Investments

    Creating an investment policy lays out a set of portfolio rules to follow. And, while it does not provide the investment strategy, it does tell an investment officer about the need to be both safe and liquid. True, every financial institution is unique, but all good strategies might include a few of the same key factors, including interest rate shift scenarios, staggering maturities, duration expectations, and when to modify a barbell or laddered strategy.

    While the process of developing the right strategy for your financial institution may seem overwhelming, it doesn't need to actually be that way. Work with a trusted investment professional who can help develop a customized strategy that will help ensure your portfolio is maximizing safety, liquidity, and yield.


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    Chris Davis

    Chris Davis joined SWBC Investment Services in January 2010 as an Operations Specialist. Before his lengthy career in Supervision and Operations Administration with SWBC, he served as a Compliance Officer with Investment Professionals, Inc. In his role as Director of Operations, Chris is responsible for executing the day-to-day strategies and management of the Operations Department and daily supervision of the advisor group. Chris also proudly serves in the Air Force Reserves and currently holds Series 7, 66, and 24 licenses.

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