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September 2019 E-Newsletter: Do Your Investments Match Your Risk Tolerance?

Provided by Gardey Financial Advisors

Do Your Investments Match Your Risk Tolerance?

When was the last time you looked at the contents of your portfolio?

It is a good idea, from time to time to review how your portfolio assets are allocated, in other words how they are divided among asset classes or diversified.

At the inception of your investment strategy, your target asset allocations reflect your tolerance for risk. Over time though, your portfolio may need adjustments to maintain those target allocations.

Since the financial markets are dynamic, the different investments in your portfolio will gain or lose value as different asset classes have good or bad years. When stocks outperform more conservative asset classes, the portion of your portfolio invested in equities grows more than the other portions.

To put it another way, the passage of time and the performance of the markets may subtly and slowly cause your portfolio asset allocation to drift away from your target asset allocation.

If too large a percentage of your portfolio has drifted away from your target asset allocation you may be taking on more or less risk than you intended.  To address this, your portfolio can/should be brought back in alignment with your target asset allocation. This process is called rebalancing.  

A balanced portfolio is important. It would not be if one investment class always outperformed another – but in the ever-changing financial markets, there is no “always.” In certain market climates, investments with little or no correlation to the stock market become appealing. Some investors choose to maintain a significant cash position at all times, no matter how stocks fare.

Downside risk (the possibility of investments losing value) can particularly sting investors who are overly invested in momentum/expensive stocks. Historically, the average price/earnings (P/E) ratio of the stock market as measured by the S&P 500 has been approximately 14 times greater than their combined weighted average earnings.  A stock with a dramatically higher P/E ratio maybe particularly susceptible to downside risk.1

Under diversification risk can also prove to be an Achilles heel.  As a hypothetical example of this, say a retiree or pre-retiree invests too heavily in seven or eight stocks, if shares of even one of these firms plummet, that investor’s portfolio may be greatly impacted.

Are you retired or retiring soon? If so, this is all the more reason to review and possibly adjust the investment mix in your portfolio. Consistent income and the growth of your invested assets will be among your priorities, and therein lies the appeal of a balanced investment approach, with the twin goals of managing risk and encouraging an adequate return.

Risk Tolerance is a crucial part of portfolio construction and in achieving a client’s financial goals.  If you have questions or concerns about your risk tolerance or the level of risk your portfolio is taking, please contact your financial professional.  

Important Disclosure Information

Gardey Financial Advisors Disclosure Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Gardey Financial Advisors (“Gardey”), or any non-investment related content, made reference to directly or indirectly in this commentary will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this commentary serves as the receipt of, or as a substitute for, personalized investment advice from Gardey. Please remember to contact Gardey if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services.  Gardey is neither a law firm nor a certified public accounting firm and no portion of the commentary or content should be construed as legal or accounting advice.  A  copy of Gardey’s current written disclosure Brochure discussing our advisory services and fees continues to remain available upon request. This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note -investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax, or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.


1 thebalance.com/normal-pe-ratio-stocks-2388545 [2/27/19]