Review. Reassess. Reallocate.

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Review The stock market has been quite volatile over recent months. This degree of volatility plays havoc with our emotions and you start to question your portfolio decisions. No one can predict where the markets are headed short term. Watching the markets and financial news daily will not give you any guarantee of future market movements.

These times provide us an excellent reminder to review our portfolio to make sure our monies are properly invested given our goals, invested capital and risk assessment.

Basic Asset Allocation Decisions The relationship between equities, fixed income and cash is the most important decision regarding your portfolio.

Fixed income in your portfolio will further insulate you from market declines in the equity markets. As you move toward retirement, this is an important consideration – should the markets suffer a major decline, you may not have sufficient time to recover and worst yet, affect your immediate income should you already be retired.

However, if you need to grow your portfolio, then more equities will help create more capital over time. Corrections are a normal part of the investment process.

Davis Miles Referral

Reassess The first important factor is to build a well-diversified portfolio that covers the world’s markets without excess risk (over exposure to specific sectors). Then it is prudent to analyze your holdings to make sure each holding is held for a specific purpose (i.e., covering specific global exposures). It is time to reassess your specific holdings for over sector exposure, fees and commissions, turnover and taxes, etc.

As a lawyer, your money should work as hard as you do and it is essential to take the time to evaluate.

The Use of Alternative Investments Assuming you have built the portfolio that makes sense for you, how do we invest our money that limits our downside or reduces our risk? The concept of negative correlation means that parts of your portfolio do not move in tandem with other parts of the portfolio. This helps to drive down the total risk of the portfolio when different investments perform differently in the same market conditions.

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Some forms of alternative investments include: real estate investment trusts, business development companies, limited partnerships, oil and gas or other non-traded investments. Buying these investments may increase diversification and negative correlation but hamper liquidity.

Alternative mutual fund options include long-short funds, market neutral funds and managed futures funds. Inclusion of these strategies will also help further protect the downside in your portfolio; however, you will not receive the full market returns in a bull market. There is a trade-off of risk and reward and yet another decision that needs to be analyzed regarding your risk tolerance and goals for your money.

Reallocate Once you have reviewed your portfolio and reassessed how everything is invested, it is time to rebalance your portfolio. When we experience extreme market movements, the percentage of equities and fixed income changes. Should your portfolio shift dramatically, it would be prudent to rebalance the percentage of your broad asset classes that you feel comfortable with. Rebalancing should be considered at least annually and certainly during turbulent market movements.

Summary Portfolio construction is the most paramount decision that will affect the future risk and performance of your portfolio. In any event, it is imperative that you understand what you’re invested in and why. It is your money and your future financial health depends on it.

Securities and advisory services offered through Commonwealth Financial Network, Member FINRA/SIPC. A registered investment adviser. Diversification does not assure a profit or protect against loss and cannot guarantee that any objective or goal will be achieved. Craig Richman

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