Determine your risk tolerance. Every investor has a unique tolerance to enduring market losses and to avoiding too good-to-be-true opportunities. These tolerances change over time. Wealth and Financial Planners usually ask their clients to begin the conversation with the client taking a risk tolerance questionnaire. By doing so the client sets an initial mark on the risk spectrum that allows the practitioner to begin the allocation process. By adopting a risk allocation that is right for you, you will be more likely to stick with your investment strategy over time when markets are up as well as down.
Allocate your assets according to your risk tolerance and the allocation’s ability to meet your goals. Extremely risk adverse clients will gravitate toward low volatility assets such as Bonds while aggressive investors gravitate toward high volatility assets such as stocks and alternatives. However, most investment managers recommend an asset allocation somewhere between these two points on the spectrum. The correct allocation for you should meet both your risk and return parameters while residing on the efficient frontier (“providing the most bang for the buck).
Diversify your portfolio. In all but the most extreme of circumstances a diversified portfolio will provide significant protection against market volatility and will also provide adequate liquidity should you require cash during a down market. Your investment manager will say that Ideally during your working career you should allocate about one to two years of cash needs to your bond portfolio allowing sufficient funds should you be required to withdraw money during a bear stock market. The remainder of your funds should be allocated to the equity and alternative asset markets. A financial planner will pay particular attention to your demographics and financial position when diversifying your portfolio.
Don’t try to time the market. Don’t attempt to time the markets. No one’s crystal ball has consistently predicted market turns – no one’s – ever. Investment advisors will point out that 90% of the markets best days of return tend to happen within a week of the market’s sharpest down turns. Staying on the sidelines can be equally as dangerous. Over a 20-year period if you missed just the 30 best trading days out of 5,036 trading days you would have lost 1.5% on your investments. A wealth advisor will tell you it’s best to consistently fund a well allocated portfolio through thick and thin taking advantage of dollar cost averaging during the market’s peaks and valleys
If you are concerned about your investments in today’s volatile markets and you would like to benefit from a conversation with an experienced and impartial fee only fiduciary like Winthrop Partners, contact Thomas Saunders 267-454-4585 Thomas.Saunders@WinthropPartners.com