Balancing Portfolio Risk with Predictability

1 Balancing Portfolio Risk with Predictability Header ImageIn just a few days in October 2018, the markets showed many investors why it’s useful to have a good understanding of risk.

The S&P and DOW both fell sharply in October, and we fielded a lot of questions about what it could mean for the future. For many investors who had enjoyed the fairly stable, multi-year bull market, these few days were something of a wake-up call.

The reality of investing is that a high level of exposure to potential rewards can also raise your exposure to potential risks.

Knowing the right balance for you is one of the keys to a sustainable investment strategy. Here’s why.

Your goals are the foundation of your strategy

This is obvious to most people, of course, but knowing what your money is for can help you determine how much risk you’re willing to take. It’s the balancing part that’s hard: after all, most of us have competing priorities, and it might not be easy to know how that translates into a specific amount of, say, equities or bonds.

Your financial advisor can help.

At Vitucci & Associates, we take the following approach:

  • Analyze and understand your core financial position as of today
  • Develop a sense of your expectations and needs for tomorrow
  • Prioritize and plan for those expectations
  • Offer suitable paths that can help you meet your goals

Your Retirement Transition Plan

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We start with what you have in place today: these are the resources that you can count on right now and the assets that we will base any future strategy on. From this point, the core question is this: how can I help preserve what I already have while also maximizing my ability to meet my needs in the future?

To answer this question, we need to identify those future needs and create a set of goals and expectations around your life – whether it’s retirement, your career, or your hopes and dreams for your family. Again, we all would like to accomplish a lot, but in reality, most of us have to balance those goals and decide which ones will take precedence over the others.

Client story

Our client Karina, an entrepreneur, wanted high growth in her investment account.

But as we talked about her goals for the future, a key issue that kept on coming up was Karina’s passion for and career in entrepreneurship. One of the main priorities in Karina’s life is the ability to invest heavily in up-and-coming companies.

As we spoke about the next decades before retirement, it became clearer that with so much risk concentrated in her professional life, it would make sense for Karina to mitigate risk in her financial strategy. The end result was a financial plan that called for a more conservative approach to risk than you might otherwise find for someone her age.

Be clear on your risk number

One of our favorite tools in the office is Riskalyze: it can help investors get a clearer view of their actual risk tolerance and how we can structure an investment strategy to match. Riskalyze helps us to quantify how much risk you’re willing to take and how we can align your strategy with your needs.

Even if you don’t have access to Riskalyze, we do recommend getting a clear grasp of how much risk you can realistically take. After all, it’s easy to “guess wrong” about how much risk we can stand to take – you might grossly over- or under-estimate it, depending on your beliefs. So getting some feedback in terms of dollars and cents can help you find a more suitable path forward.

Just remember, your psychology is also an important part of the equation.

Even if your investment strategy is “perfect” in terms of balancing your need for predictability versus profit, if you struggle to maintain it due to fear or worry, it won’t be as successful in meeting your goals. That’s why we recommend working with a qualified advisor who can help you find the most suitable course of action and help you stay on track when the going gets tough.

Know what your money is doing

Finally, be sure you’re comfortable with the “why” behind your strategy. Whatever strategy and products you’re using – whether an annuity or a portfolio of ETFs – it is very important to know how your plan applies to your financial picture and why it’s been recommended to you.

This is all the more critical because, generally speaking, there’s more than one way to build a financial strategy. But creating one that strikes the right risk balance while being sustainable for you will, in our experience, help get you closer to reaching your long-term goals.

Are you ready for retirement?

For many investors, the balance of risk and reward becomes even more crucial during the transition to retirement. Download our free guide to retirement transitions to get a clearer view of where you are in your planning – and how you can take steps to build a more robust retirement.

Download Your Retirement Transition Plan today!


Your Retirement Transition Plan

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Let Us Help!

We can discuss this topic and more at a complimentary appointment. As a bay area retirement planning coaches, we can give you a review and make suggestions based on your retirement objectives.

1 Balancing Portfolio Risk with Predictability Infographic

Important Disclosures

The opinions voiced in this article are for general information only. They are not intended to provide specific advice or recommendations for any individual and do not constitute an endorsement by United Planners.

To determine which investments may be appropriate for you, consult with your financial professional. Please remember that investment decisions should be based on an individual’s goals, time horizon, and tolerance for risk. Neither diversification nor asset allocation can ensure a profit or prevention of loss in times of declining values. United Planners does not render tax advice.

Securities and advisory services offered through United Planners Financial Services, member FINRA, SIPC. Pasquale Vitucci, CA Insurance Lic. # 0758212, is an Endorsed Agent of Vitucci & Associates Insurance Services CA Insurance Lic. # 0I06319. Vitucci & Associates Insurance Services and United Planners are separate and unrelated companies.
This page contains links to third-party company websites. By selecting a link, you will be leaving our website and launching a new browser window. These links are provided for informational purposes only and should not be viewed as an endorsement, sponsorship, solicitation or other affiliation with respect to any third parties. We are not making any recommendations or providing any advice on securities in particular or investments in general. Neither Vitucci & Associates nor United Planners Financial Services have reviewed the content of, and are not responsible for, the information or the results of the third-party websites.