The market’s been volatile. Did you sell at the wrong time — the really wrong time? Have you suffered losses because you bought investments that tanked?
Here are a few solid strategies to get your portfolio back on track.
Start with a review of your risk comfort level
If it’s been more than 24 months since your investment provider has had you answer a series of questions about your comfort level with risk OR you’ve experienced a life change — retiring or losing a spouse or getting remarried — you need to review your risk comfort level today.
Most people nearing retirement or in retirement will score in one of three categories: balanced (approximately half of your portfolio is invested in high-quality fixed-income securities, and the other half is invested in dividend-yielding shares); moderate (approximately three-quarters of your portfolio is invested in high-quality fixed-income securities, and one-quarter is invested in low-risk high-dividend-yielding shares); or conservative (approximately 90 per cent of the portfolio is high-quality fixed-income securities, and the other 10 per cent is in lower-risk high-dividend-yielding shares).
It’s commonplace to have between five and 10 per cent of the portfolio held in cash at this stage of life.
A good advisor will shift your portfolio to lower-risk investments over time, in an effort to protect your assets. So don’t be surprised if, after you review your score, your advisor recommends a shift in your investments to align better with your life stage. They’ll also keep your investments diversified so you won’t end up with all your eggs in one basket.
Investors who are aligned with their long-term risk ranking do make more money in the long run. Like everyone else, they will ride the ebbs and flows of the market but are well positioned to experience the full benefits of the investment market recovery. When your portfolio is out of sync with your investment risk preferences, you’re statistically more likely to earn less money on your investments.
Pack more money into the portfolio
As long as your portfolio is properly diversified and has solid fundamentals (my first point), reframing your money mindset to envisioning losses and a down-market cycle as an opportunity to snap up great discounted assets is healthy and should pay off in the long run.
So, once you’ve refreshed your portfolio risk level (and your advisor has subsequently rebalanced the investments within it), consider adding even more money to your portfolio. This is a great way to benefit from the full market recovery and put your savings to work.
This strategy works well if you’ve got the flexibility in your budget and/or you have sizable savings not earning a strong rate of return.
Dealing with losses, and then cutting them
Losing money can make you feel like a failure. And that can prevent good financial decision-making. You’ve seen this before, I’m sure — investors hanging on to horrible stocks, clinging to the hope that things will get better … but, they get worse.
Losing money with your portfolio will happen from time to time. Knowing when to cut your losses, though — that’s the key. It can be better to take the loss (which can be reflected as a capital loss in your tax filing if it is within a non-registered account) and reinvest your money in an investment that is better positioned for growth longer term.
Set your sights on a goal for the investment at the outset. When you know your target for your return and how much you’re willing to lose, you can take profits when you reach the target earnings and hit the sell button when you’re unwilling to incur further losses.
As with most things in life, boundaries keep our decisions healthy. Your investment advisor can help you set these boundaries, and stay on top of changing market conditions.
