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Do You Know How Much Risk is in Your Portfolio?

Do You Know How Much Risk is in Your Portfolio?

| March 24, 2018
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We take risks every day, even if we don’t realize it. We may drive too quickly or leave something valuable in our cars or buy a new product without doing any research on it. It’s impossible to avoid risk, but when it comes to your money, taking on too much risk can mean not reaching your goals. When you were in the accumulation phase of your life, you may have taken risks in pursuit of rapid growth, but as you age and accrue more assets, your priorities have shifted. Does your portfolio accurately reflect your risk tolerance? What steps can you take to reduce risk and preserve your wealth?

Risk, Defined

Risk is fundamental to investing. Even “investing” by hiding cash under your mattress involves risk since there’s always the chance of a break-in or increased inflation eating away at its value.

Some risks are avoidable while others are not. Avoidable risks are those that take place when your portfolio holds too many stocks or bonds that have been unstable in the past or when your portfolio is not diversified enough. For example, you may hold too much of your company’s stock in your 401(k) plan or another account. Or you have too many overlapping U.S. stock mutual funds, instead of being more globally diversified. Avoidable risks often occur when we underestimate risk and believe we can tolerate more than we actually should.

On the other hand, unavoidable risks are those that occur because our world is ever-changing, volatile, and we can’t predict everything. As much as we wish we could, unavoidable risks are simply out of our control.

Risk is also personal. Your risk tolerance is based on your unique circumstances, stage of life, and personality, so it’s not going to look the same as your sibling’s or your next-door neighbor’s.

What can you do to cut down on the avoidable risks that may be lurking in your portfolio?

1. Plan For Success

There’s an old adage that says, “Success doesn’t just happen; it’s planned for.” If you want to start decreasing your investment risk, then you need to create a plan to do just that. Without a plan, you leave yourself open to emotional decision making in the heat of the moment that could result in the loss of your life savings. The cycle of investment emotions has driven some people to financial ruin. Warren Buffett, a famous financial investor said, “Be fearful when others are greedy and greedy when others are fearful.”  What most people do instead is shown on the graph below:

The markets have achieved record highs this past year. This has led to many people wanting to “make it big” and try to beat the market, but this kind of emotional investing will only lead to disaster. (1) If you don’t have a plan in place, you will fall prey to an internal struggle of feeling like you are missing out when things are good and worrying about loss when things are bad.

This process for making decisions takes us down a road of having an inappropriate amount of risk for the season of life we are in. Don’t let yourself get to the place of needing to backpedal and regain the control you could have had all along.

2. Set Intentional Goals

Do you have a goal for your finances or are you just crossing your fingers and hoping you have enough for the lifestyle you want in retirement? Your specific goals will determine the amount of risk you can and should take with your money. For example, do you want a guaranteed source of income in your golden years? Then you will stick with your investments for the long-term, not buying and selling based on the current market conditions. Do you desire substantial growth? Then you might take on more risk and invest less conservatively. Every dollar in your portfolio needs to be working towards a specific goal.

3. Take Action

Finally, you need to follow through on the plan you created and the goals you are trying to attain. Don’t let yourself procrastinate where your money is involved. Work with your advisor to ensure that your investments are at the right risk level for your situation and stay disciplined when the markets feel like a roller coaster.

How We Can Help

Growing your wealth is a priority but protecting and preserving your assets is equally important. At Harbor Wealth Management, we take the time to analyze your situation and understand your short-term needs, long-term goals, and risk tolerance. Once we have the foundation in place, the next step is to create custom strategies to help you pursue your goals. To schedule a no-obligation conversation, or to get a second opinion on your current portfolio,send me an email at jeremys@myharborwm.com or call my office at 985-605-7185.

About Jeremy

With nearly two decades of experience in the financial services industry, Jeremy Smith serves as a dedicated and knowledgeable financial advisor and the founder of Harbor Wealth Management. He specializes in serving retirees, pre-retirees, small business owners, and widows, providing a comprehensive array of investment management and financial planning services. Jeremy aims to serve his clients as a financial guide who is here for their every need, helping families find lasting solutions so they can focus on what matters most to them. To learn more about Jeremy, visit www.myharborwm.com or connect with him on LinkedIn.

Securities and advisory services offered through LPL Financial, a registered investment advisor.  Member FINRA/SIPC.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. You should discuss your specific situation with the appropriate professional.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Investing involves risk including loss of principal. No strategy assures success or protects against loss.

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(1) http://www.qidllc.com/wp-content/uploads/2016/02/2016-Dalbar-QAIB-Report.pdf

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