Preparing your investment portfolio for the unexpected


Key Points

  • Preparing for the unexpected can help long-term portfolios weather stock-market fluctuations.
  • A time-tested approach is to maintain a proper allocation and mix of investments.
  • This can help you reduce volatility in your portfolio value and may enhance growth potential over time.

Stock-market movements to deep lows and record highs over the past year re-affirmed the importance of preparing your portfolio for the unexpected. Your financial advisor provides a personalized recommendation for diversifying your investments and is committed to:

  • Make recommendations based on your financial goals and needs
  • Provide you with timely perspectives on market and economic conditions
  • Convey the longer-term picture of your goals to help you remain confident during inevitable market uncertainty and volatility
  • Review your goals, progress and investments on a regular basis

A personalized investment mix

When providing investment recommendations, your financial advisor will likely use an asset allocation strategy. Time-tested and tailored to you, asset allocation is the act of investing in different asset categories: stocks, bonds, alternative investments and cash. Your financial advisor will factor in your goals, risk tolerance and time horizon.

Asset allocation

Asset classes (stocks, bonds, cash, alternatives)Plus signEvaluating your goals, risk tolerance, time horizon, unexpected, tax situationEquals signA portfolio tailored for you: stocks, bonds, cash, alternatives


Asset allocation and diversification work together

You might wonder how a diversified portfolio fits with an asset allocation strategy. Think of asset allocation as the overarching idea, with diversification being the more granular concept within. Diversification goes one step further to invest in multiple different stocks and bonds, for example, across a range of regions, sectors or industries.

Asset allocation and diversification — coupled with personalized advice from your Ameriprise financial advisor — can help:

  • Reduce volatility in portfolio value. Rather than investing only in stocks (or even the stock of just one company) and accepting all the related risks, diversification can help spread the risk. In addition, higher performing investments can offset losses among others. This is because over time, asset classes perform differently from one another, and no single asset class has consistently outperformed the rest.

  • Enhance growth potential over time. Over long periods, on a historical basis, asset prices have moved in an upward direction. One systematic investment strategy is to contribute equal dollar amounts in the market at regular intervals of time — even when the market moves down over the near term.

    It’s called dollar-cost averaging, an approach that enables you to buy fewer shares when the stock price is higher and more shares when the price is lower. This gives you the potential to build wealth over time as you accumulate more shares that, altogether, may rise in value over time. (Neither price appreciation nor profit are guaranteed, however.)

A personalized investment mix offers another benefit: greater overall confidence, which could make you less prone to emotionally biased, counterproductive decisions during market pressure.

Staying appropriately invested over the long term can help you stay on track to achieve your financial goals. As the historical chart below shows, for example, individuals who were continually invested throughout market cycles over two decades had better outcomes than those who were not. In this example, moving to cash meant missing the eventual increase in stock prices — a material impact on portfolio values. 

Source: Bloomberg, Standard and Poor's, American Enterprise Investment Services. Returns assume investor was fully and continually invested in the S&P 500 Price Return Index except for the days specified. Calculations assume no fees or transaction costs. Past performance is not a guarantee of future results.

Key considerations for your long-term portfolio

Your Ameriprise financial advisor is committed to provide you with personalized advice and regularly review your goals, progress and investments. In preparation for those ongoing discussions, ask yourself:

  • What asset classes make the most sense for you?
  • Does your investment mix support your goals and time horizon?
  • Are you comfortable with the amount of risk in your portfolio?
  • Have your financial goals changed?