One strategy is to be prepared for market downturns by managing risk. Minimizing risk in a portfolio, or managing volatility, is one of the few investment world variables you can control. Whether the market goes up or down you have no control. How much your portfolio experiences the movement of the markets is within your control.
A risk mitigated portfolio is a diversified investment allocation representing your personal risk tolerance, time frame, values, and goals.
Risk tolerance is your ability to stomach the movements or volatility of the markets. In all my years I have yet to meet someone who doesn’t like the markets moving up. I can also say that I have yet to meet someone that enjoys the down markets. While there are opportunities in buying into a down market it is difficult to hold cash, earning next to nothing, until the market goes down. This could be years. A fully invested allocation may reduce the downside by decreasing stock exposure and increasing bond exposure. To be fair, there are still risks in bond investments, particularly with interest rate moves. Bonds have an inverse relationship with interest rates. As rates move up there can be a decreasing impact on bond values.
Time frame is the expected period to your event. If you are saving for a new car the time period is to the date of your anticipated purchase. If you are saving for retirement keep in mind that retirement is a transition period to a long event of retirement. Planning through retirement via your investment allocation may be a valuable consideration. Some think being aggressive to retirement then shifting to conservative is the process retirees follow. However, you may consider the impact of this approach, particularly with inflation. Retirement may be longer than your working years.
Values are the things important to you. If security is a prime value, you may be inclined to want to be assured your money will last. If adventure is important, you may need confirmation your investments will provide for travel and experiences. Your values are personal, not right or wrong, and will influence your investment decisions.
Goals are defined by what you want to accomplish. An investment portfolio designed around what you want your money to do for you makes perfect sense.
You may desire a portfolio that is reflective of your personal values, expected goals, comfortable volatility and expected time frame – have you evaluated your portfolio to your personal situation? Or are you only looking at returns? Call us today at 602.923.9800 to schedule your complimentary initial consultation.
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