Are you earning 15% or more on your portfolio?
If you are, congratulations, BUT … you may not be diversified enough to help protect yourself from the next market correction.
As advisors, one of our fundamental jobs is to partner with clients to assess their tolerance for risk and make sure their portfolio is constructed in a way that reflects their individual outlook and circumstances.
We tend to see an uptick in new client inquiries when the market is more volatile. In recent years, as the market has generally done well, most investors have not seen significant market declines in their portfolios. However, if you or your advisor have not constructed your portfolio according to some of the tenets of asset allocation, you may be in for a rude awakening when the market dips.
It bears repeating that no one can predict when the market might turn, or why or how dramatically it may spike back up when it does. As always, we counsel against shifting your portfolio in reaction to near-term forecasts or results.
So, how can you prepare?
First, if you don’t feel comfortable going solo, please reach out to someone who can help. Both Andrew and Bob are CERTIFIED FINANCIAL PLANNER™ certificants, which we believe should be the minimum bar you should require when considering an advisor. In addition, we hold the Chartered Financial Consultant® and Chartered Life Underwriter® designations. Lastly, Andrew holds the Accredited Investment Fiduciary® designation. We believe knowledge is essential to providing superior service.
Second, when is the last time you had a conversation with your advisor about your personal goals and risk assessment? Did you really consider what a 30% market downturn would mean to you? If you have a 20-year investment time horizon, maybe you would consider it just a blip on your investing radar. If you are closer to retirement, maybe it would truly affect your lifestyle?
Some other questions to consider:
Market Risks – Are you fortifying your exposure to market risks and expected investment returns with enough lower-risk holdings (e.g. fixed income/bonds)?
Personal Risk Tolerance – Have you been through past bear markets? Does your current portfolio mix of safer/riskier holdings accurately reflect what you learned?
You can prepare for the next down market by having a well-planned portfolio in place today – one you can stick with throughout any market upheaval. It should be structured to capture an appropriate measure of expected investment returns during good times, and allow you to pass what we call the “sleep test”. If you are worrying about your portfolio too often (e.g. perhaps you lie awake thinking about it), you may have decided to take on too much risk for your personal circumstances. A change may be in order?
When is the last time you’ve thought about your portfolio from this perspective? If it’s been a while – or never – let’s talk. Because there’s never a better time than today to ensure you are well prepared for tomorrow.
Disclosure: There is no assurance that a diversified portfolio will produce better returns than an undiversified portfolio, nor does diversification assure against market loss. A plan of regular investing does not assure a profit or protect against loss in a declining market. You should consider your financial ability to continue your purchase through periods of fluctuating price levels. Past performance is no guarantee of future results.