Whathasbeendrivingvolatilityinthemarket?
Threethingswereresponsibleformarketturbulence
inthefourthquarteroflastyear:tradefears;potential
growthslowdown;andrisinginterestrates.Since
then,earningshaveexceededexpectationsandthe
interestrateoutlookhasflip-flopped.Traderemains
anongoingrisk.Chinaisslowingdownandtariffswill
exacerbatetheeffectofthis.Howshouldinvestorsrespondtounsettling
headlines?Shouldtheybescalingdowntheriskin
theirportfolios?
Therearescaryheadlineseveryyear;mostyears,
marketschargerightthroughthem.Regardingtrade,
youcan’tpredictwhattwounpredictableleaders
willdo.Sofar,proposedtariffsremainsmallerin
magnitudethanthe 2017 taxcuts.Mostinvestorsare
bestservedstickingtoastaticassetallocationcrafted
fortheirneeds.Peopleshouldhaveastrategythatworkswhenthey’re
notlookingattheheadlines.Makingdecisionsbased
onthelatestfrontpagecanbecostly.Howcaninvestorsknowhowmuchrisktheyare
reallytaking?
Thefirststepistounderstandwhatyourasset
allocationactuallyis.Mostinvestorsdon’t.Itiscommon
tohavemultipleaccountsacrossnumerousinstitutions;
thismakesitdifficulttotrackandmeasurerisk.Manyportfoliosarecollectionsthathavebeen
accumulatedovertimewithlittlestrategicthought.
However,therearenowonlinetoolsavailablethat
showyouanoverviewofyourportfoliopositioning,
bothfromaninvestmentandretirementplanning
perspective.CraigBirk,
CIOforwealth
managementfirm
PersonalCapital,
discussesportfolio
decisionsvis-a-vis
today’snews.
CraigBirk
ChiefInvestmentOfficer
PersonalCapitalBEHIND THE HEADLINES:
UNDERSTANDING
YOUR
PORTFOLIO
RISK
Whatarethecommonmistakesyouseeinvestors
making,andwhatcantheydotocorrectthese?
Therearetwocommonmistakesatoppositeends
ofthespectrum.First,alotofpeoplehavebecome
overlycomfortablewiththelongbullrun,running
largeover-weightsinthetechnologysector.However,
inthedotcomcrash,techstockslost80%.Inthe
financialcrisis,financialslost80%.Thosewerethe
twomostpopularsectors,astechnologyistoday.
It’stypicaltounderestimatetheriskthatcomesfrom
concentrationsinspecificcompaniesorsectors.Theoppositeproblemisholdingalargeamountin
cash,eitherthroughfearorthroughnotknowinghow
toinvestit.Whatshouldinvestorsbelookingattoincrease
theirdiversification?
Continuetothinkglobally.There’sareluctancetoinvest
internationallybecausetheUShasdonesowellinthis
bullmarket,drivenbytechnology.However,non-US
stockslookattractive,developed-marketstocksare
cheap,andemerging-marketstocksarecheaperstill.Bondsarealsoappropriateforalmosteveryone,
particularlygovernmentbonds,astheyareoneof
thefewthingsthatgoupwhenstocksgodown.
Treasuriesshouldmakeupthecoreofthefixed
incomeportionoftheportfolio,supplementedby
others,suchascorporatesandemergingmarket
bonds.Furthermore,althoughinflationhasbeen
mutedforyears,thiswon’talwaysbethecase,
sosomeexposuretoinflation-linkedbondsisa
goodidea.ADVERTISEMENT