There’s a lot of buzz and anxiety about what the market will do next. We’ve been riding highs1 and flirting with market corrections,2 but haven’t reached the predicted bear market yet. If you know anything about the market, you know that ups and downs are part of the game. So instead of crossing your fingers and hoping for the best, dig into your portfolio and make sure you are set up to be as successful as possible regardless of what the market does next.
Do You Know What You Own?
Can you name the investments in your IRA or 401(k)? In a recent appearance on the Jeff Motske radio show, Jeff and I discussed how a shocking 40% of Americans don’t know what they are investing in.3 When it comes to setting up your retirement accounts, many people choose the funds that sound familiar and then forget about it. Our tendency is to focus on the numbers and determine our portfolio’s success by whether or not it beat the Dow or S&P 500.
Most of us would agree that diversification is important, but diversification is about more than how many funds you are invested in. For example, you could choose four separate mutual funds, but they are all invested in the same asset class. If that class is hit hard when the market dips, you could lose more than you should.
Investing Is Not One-Size-Fits-All
Even investments that are created to be “set-it-and-forget-it,” such as target-date funds, are not created equal. Target-date funds are intended to simplify the process of choosing investments by giving employees the option of choosing one fund that diversifies their investments among stocks, bonds, and cash (the allocation) throughout their working life based on their projected retirement year.
Sounds like a great plan, right? But if you look deeper, there are two types of target date funds, and the one you choose could make a significant difference on your nest egg as you draw closer to your retirement years. One type is designed to get you TO retirement and is more conservative. For example, by the time you retire, this portfolio could be close to 8% stocks. The second type is designed to get you THROUGH retirement, meaning that when you reach the time to retire, you may own about 60% stocks because it’s anticipating that you will live 15 to 20 years longer after you retire.
Why does this matter? It’s all about risk.
What is Risk?
Risk is fundamental to investing. Even “investing” by hiding cash under your mattress involves risk since there’s always the chance of a break-in or increased inflation eating away at its value.
Some risks are avoidable while others are not. Avoidable risks are those that take place when your portfolio holds too many stocks or bonds that have been unstable in the past or when your portfolio is not diversified enough. Avoidable risks often occur when we underestimate risk and believe we can tolerate more than we actually can.
On the other hand, unavoidable risks are those that occur because our world is ever-changing, volatile, and unpredictable. As much as we wish we could, unavoidable risks are are simply out of our control.
Risk is also personal. Your risk tolerance is based on your unique circumstances, stage of life, and personality, so it’s not going to look the same as your sibling’s or your next-door neighbor’s.
What can you do to cut down on the avoidable risks that may be lurking in your portfolio?
Have A Plan
Growing your wealth is a priority but protecting and preserving your assets is equally important. As a financial advisor, I take the time to analyze your situation and understand your short-term needs, long-term goals, and risk tolerance. Once we have the foundation in place, the next step is to create custom strategies to help you pursue your goals. To schedule a no-strings-attached meeting or to get a second opinion on your current portfolio,reach out to me at (949) 221-8105 x 2128 or email me at email@example.com.
About Mike Loo
Mike Loo is an independent financial advisor with more than 20 years of experience in the financial services industry. His mission is to make a meaningful impact on the lives of clients and the people they care most about, help them make educated decisions with their money, and build a strong financial foundation for both themselves and their next generation. Mike is committed to meeting a high standard of excellence, taking the time to listen to clients’ needs, and designing strategies that aim to help clients save money and reduce debt. He seeks to fit a client’s investments into their life and educate them so they’ll understand their investments. To learn more about how Mike may be able to help, connect with him on LinkedIn, call his office at (949) 221-8105 x 2128, or email him at firstname.lastname@example.org.
Mike Loo is a registered representative for LPL Financial. Securities offered through LPL Financial, Member FINRA/SPIC. Investment advice offered through Trilogy Capital, a registered investment advisor. Trilogy Capital Inc. and Trilogy Financial are are not affiliated with LPL Financial.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. Investing involves risk, including the risk of loss. No strategy assures a profit or protects against loss.