A Risk-Based Approach in Evaluating Your Portfolio
by Robert Mikkelsen
Over the past eight years, the U.S. Stock market has experienced an almost 275% increase as measured by the S&P 500 Index. Granted the market had risen out of one of the worst recessions in modern history and hence the returns are somewhat distorted.
Because of this, we believe this is an important point in time to evaluate your risk. What we mean by risk is simply this: Is your present portfolio still consistent with your risk tolerance, goals and objectives?
The second question is: Have certain parts of your portfolio appreciated in such a way that there is now an embedded risk? Or, are you overexposed in a certain asset class? We believe these are just some of the reasons your portfolio might be in need of a tune-up.
In pointing out these suggestions, we are not predicting and imminent downturn in the markets. We are simply saying that a prudent risk-based approach is an important part to a long-term portfolio strategy.
The second part to a risk-based approach is to have ongoing evaluations of the asset classes from within a group. An example of this would be the equity portion of your portfolio. Is it properly diversified? Do you have the proper exposure to International Stocks, Mid Cap Stocks, Small Cap Stocks etc.?
Proper construction of your portfolio is one of the most important factors in its overall success. It’s also good to remember that investing is a marathon, not a sprint.