Three Upside-Down Investment Insights
Written by Andrew Hunt
Written by Jason Hiley
Building an investment portfolio is all about creating financial freedom for your future. The key to optimizing your investments is to remember that managing risk plays an important role. What may surprise you is that even if you don’t change your investments, your portfolio’s risk level could change over time.
When one asset class is performing better than the others, your portfolio could become “overweighted” in that asset class.
What does this mean?
For example, maybe you initially selected an asset allocation of 50% stocks and 50% bonds. Several years go by and your stocks return a higher average than your bonds. This will cause your portfolio to be more stocks than bonds. It’s a good rule of thumb to review your portfolio at least once a year, and if your mix is off by at least five percentage points, consider rebalancing.
There are a couple of ways to rebalance your portfolio.
2. Move money from one asset type to another.
If you rebalance your portfolio annually over the course of 30 years, your risk label will stay relatively stable. If you don’t, your risk level will steadily increase. Why is this important? Because your timeline is always growing shorter. Your situation may likely be different today than it was 10-15 years ago when you began investing. Your needs may change which means your investments should also flex to stay aligned with your goals.
For example, when you’re in your thirties and a long way from retirement, your risk tolerance will be lower than when you start getting closer to retirement. A divorce or death of a spouse could also impact your financial future.
Or you may simply realize that your risk tolerance isn’t what you thought it was. If you can’t stomach the ups and downs of your portfolio, maybe it’s time to make a change to something you’re more comfortable with.
Whatever point you’re at in your life, we’re here to help you understand your risk tolerance and help you build an investment portfolio that aligns with your financial goals and your comfort level. Whether you’re a first-time investor or a seasoned pro, contact us today so we can walk beside you on your financial journey.