Finance
January 18, 2020
link to facebook link to twitter
More Stories
Will you avoid these estate planning mistakes? Reducing the risk of outliving your money Annual financial to-do list Things you can do for your future as the year unfolds. Retirement planning weak spots; they are all too common Rebalancing your portfolio Adjusting your portfolio as you age When is Social Security income taxable? Debunking a few retirement myths Retirees, check your withholding Underappreciated options for building retirement savings Social Security gets its big boost No, that is not the I.R.S. calling Is Gen X preparing adequately for retirement Tax scams and schemes Diversification, patience and consistency Signs of elder abuse The high cost of health care TOD or living trust? Coping with an inheritance Three key questions to answer before taking Social Security The financial realities of longevity Systematic withdrawal strategies Managing risk in your portfolio The different types of IRAs Annuities for retirement income Annuities for retirement income What prospective annuity holders should consider Build your rainy day fund Details people should know about Medicare Five retirement concerns too often overlooked Investing means tolerating some risk Your diversified portfolio vs. S&P 500 Making a charitable gift from your IRA Smart financial moves in your 20s, 30s, 40s and 50s Unrealized loss and gain What they are; why they matter. Making investment decisions Helping your parents manage financial tasks Taking charge of your financial life Roth IRA conversions What are your options? Major risks to family wealth The gift tax Not all gifts are taxable. Retirement plans for individuals & businesses A retirement fact sheet College funding options Ways to ease college costs Turn your intent into a commitment, set goals as you save and invest Managing money well as a couple Preparing to retire single Tax efficiency in retirement Set goals as you save and invest Could assumptions harm your retirement strategy? A retirement gender gap for women Bad money habits to break Have you budgeted for retirement? Saving your elderly parents from financial fraud Mutual Funds vs. ETFs; similarities and differences. What should you keep? Long-term investing truths: Key lessons for retirement savers Where will your retirement money come from? Retiring in the next 5 years? Catching up on retirement saving Money tips for newlyweds Retirement and adult children The retirement mind game Tax considerations for retirees Smart moves for new parents When you retire without enough ABLE accounts for disabled When a family member dies An executor checklist The retirement we imagine, the retirement we live Steps to catchup if you are behind on your retirement savings? Your financial co-pilot Yes, young growing families can save and invest Why don’t all affluent people become wealthy? Beneficial moves for every age Keep calm, stay on plan

Do your investments match your risk tolerance?

By: Ken Weise
October 4, 2019

When was the last time you looked at the content of your portfolio?

From time to time, it is a good idea to review how your portfolio assets are allocated – how they are divided among asset classes.

At the inception of your investment strategy, your target asset allocations reflect your tolerance for risk. Over time, though, your portfolio may need adjustments to maintain those target allocations. 

Since the financial markets are dynamic, the different investments in your portfolio will gain or lose value as different asset classes have good or bad years. When stocks outperform more conservative asset classes, the portion of your portfolio invested in equities grows more than the other portions. 

To put it another way, the passage of time and the performance of the markets may subtly and slowly imbalance your portfolio.

If too large a percentage of your portfolio is held in stocks or equity investments, you may shoulder more investment risk than you want. To address that risk, your portfolio holdings can be realigned to respect the original (target) asset allocations.  

A balanced portfolio is important. It would not be if one investment class always outperformed another – but in the ever-changing financial markets, there is no “always.” In certain market climates, investments with little or no correlation (a statistical measure of how two securities move in relation to each other) to the stock market become appealing. Some investors choose to maintain a significant cash position at all times, no matter how stocks fare. 

Downside risk – the possibility of investments losing value – can particularly sting investors who are overly invested in momentum/expensive stocks. Historically, the average price/earnings ratio of the S&P 500 has been around 14. A stock with a dramatically higher P/E ratio may be particularly susceptible to downside risk.

Under diversification risk can also prove to be an Achilles heel. As a hypothetical example of this, say a retiree or pre-retiree invests too heavily in seven or eight stocks. If shares of even one of these firms plummet, that investor’s portfolio may be greatly impacted.

Are you retired or retiring soon? If so, this is all the more reason to review and possibly adjust the investment mix in your portfolio. Consistent income and the growth of your invested assets will likely be among your priorities, and therein lies the appeal of a balanced investment approach, with the twin goals of managing risk and encouraging an adequate return.

  

Ken Weise, an LPL Financial Advisor, provided this article. He can be reached at 707-584-6690. Securities offered through LPL Financial. Member FINRA/SIPC. The opinions of this material are for information purposes only.