Retirement Mistake No.2: Not Seeing Danger Signs in Your Portfolio
Posted In: Retirement Planning for Entrepreneurs

Problem: Unless you’re an asset-allocation specialist, how do you know whether your portfolio is matched to your risk tolerance?

Here’s a fact for you. In a study by Brinson, Singer, and Beebower (1991) Financial Analysts Journal, asset allocation accounts for 91% of portfolio performance, with security selection and market timing factors accounting for less than 5%. Knowing this fact, most investors focus on specific securities or market timing on which to base investment decisions, yet this accounts for less than 10% of the performance. Stop wasting your time. Think about making use of asset allocation strategies to improve your performance. When an investor is frustrated with lack of performance, nine times out of ten it is based on asset allocation and a lack of diversification.

One danger sign common to most portfolios is lack of structure. To build a successful portfolio you need to have multiple asset classes (stocks, bonds, cash, alternative strategies, real estate); multiple styles (value, growth, income, and small, medium, and large capitalization); multiple geographic components (Canada, US, Europe, Asia); and multiple income components (interest-sensitive equities, Government bonds, Corporate bonds, real return bonds, high-yield bonds, mortgages, international bonds,term deposits). Let’s face it, diversification is not just buying a few stocks and a few bonds. Here are the remaining nine danger signs possibly lurking in your portfolio.

  1. Lack of clear investment policy statement (IPS)–a structure that is clearly defined and understood. Ask your financial advisor for your IPS for your portfolio.
  2. Investments mismatched with objectives or risk tolerance–understanding risk and how it relates to your money and portfolio.
  3. Under-performing investments or managers–know when to hold them and know when to fold them.
  4. Style drift portfolios–that look at risk-adjusted return.
  5. Overlapping investments or management styles.
  6. Excessive expenses or trading activity.
  7. Lack of a system or lack of regular monitoring, adjusting, and rebalancing.
  8. or untimely reporting–when do you review this stuff.
  9. Lack of communication and service.

Speak to your financial advisor today about potential danger signs in your portfolio. Did you read our last article on Retirement Mistake No.1?

Success comes to those who set goals and pursue them regardless of obstacles and disappointments. – Napoleon Hill

The future depends on what we do in the present. – Mahatma Ghandi

 

Published with permission from Grant Hicks

The information provided on this site/blog page is solely for general and educational purposes and is based on the perspectives and opinions of the owners and writers. It is provided with the understanding that it may not be relied upon as, nor considered to be, the rendering of tax, legal, accounting, or professional advice. Please consult an appropriate professional regarding your particular circumstances. This site/blog page may also contain links to other sites which are not maintained or controlled by us. Access to or use of sites to which links are provided are subject to the terms and conditions of such sites. References to third party goods or services should not be regarded as an endorsement of those goods or services. All information provided is believed to be accurate and reliable, however, we cannot guarantee its accuracy. It may also include forward looking statements concerning anticipated results, circumstances, and expectations regarding future events. Forward-looking statements require assumptions to be made and are, therefore, subject to inherent risks and uncertainties. There is significant risk that predictions and other forward looking statements will not prove to be accurate. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus and/or the fund facts before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

Let's Chat