RISK MANAGEMENT – Why We Use Safety Buffers

After the 1987 share market crash, group founder and CEO Eric McCay witnessed clients of a share broking company be forced to sell their shares into a market that had already fallen over 50%. They were over-geared and unable to make payments on loans. After watching this destruction of wealth, these people watched from the sidelines as markets rebounded – they were unable to participate in the recovery, having been forced to sell out at the bottom. Eric vowed that no client of his would ever be a forced seller like what he had just seen.

Fast forward to 1996 when he was creating the ‘5 Pillars Program’, the first element that Eric designed was the concept of a ‘safety buffer’. Every client in the program would have enough undrawn capacity to cover a 50% fall in the sharemarket without needing to sell any of their investments. This strategy had been criticized as too conservative by some industry observers, particularly in the early to mid 2000’s when the sharemarket was posting great returns. However, the strategy was proven to be successful in 2008. As news broke about clients of Storm Financial and others being forced to sell their investments after the Global Financial Crises, Eric’s decision had been vindicated. Once again he watched on as people were forced to sell into an already falling market, knowing the clients of MAS Wealth Management were safe and those who had surplus buffer could take advantage of the opportunity.