Great News: We have weathered the storm of the Great Recession of 2008 and 2009! Cautionary News: The possibilities for you to experience losses in your retirement portfolio due to factors that affect the overall performance of the financial markets continue to exist.
This risk, defined as MARKET or SYSTEMATIC RISK IS VERY REAL. As we examine client retirement portfolios, one aspect we determine is whether our client’s asset allocation is suitable to meet their financial objectives, risk tolerance and assist in mitigating market risk. The most basic strategy for minimizing market risk is diversification. A well-diversified portfolio consists of securities from various industries, asset classes and countries with varying degrees of risk. The specific risks will offset one another other but some market risk will always remain.
What are some of the best moves you can make to take on Market Risk?
- Ensure your asset allocation is suitable to your goals, objectives and risk tolerance –there is not a “one size fits all” asset allocation. Specifically, you should work with us or another trusted investment advisor to construct an asset allocation to meet YOUR specific goals, risk tolerance and time horizon.
- Ensure your portfolio is well diversified – As previously identified, diversification will assist in minimizing market risk. Make sure you are working with us or another trustworthy advisor to ensure your portfolio meets its intended diversification strategy.
- Make sure your portfolio is periodically rebalanced – Rebalancing involves periodically buying or selling assets in your portfolio to maintain your original desired level of asset allocation.
- Update your asset allocation periodically to adjust for your changes in your goals, objectives, risk tolerance and time horizon. Life happens and when confronted with life’s challenges, we may need to reevaluate our goals and objectives. Our asset allocation should also be adjusted to reflect those changes.
Market Risk is real and should not be overlooked. If ignored you could put all of your nest eggs at risk as you approach retirement.
Read about this risk along with many others in our FREE Retirement Report.