Risk management is a key component of any investment strategy. It helps investors protect their assets by aiming to reduce market risk though diversification, allocation between stocks and bonds, and other financial planning measures. By managing risks effectively, investors can help protect their portfolio against diversifiable risks and increase the likelihood of achieving long-term goals.
The risk of loss is inherent in investing: market volatility, changes in economic conditions, and geopolitical events are always there. It’s not possible to protect against all types of investment risk, but proper risk management seeks to mitigate risks than can be managed, such as company-specific risk.
Diversification of investments across different asset classes, sectors, and geographies, portfolio rebalancing, and an ongoing discussion about investment risk profile are some ways we seek to minimize investment risk.
What is a concentrated stock position? If one stock makes up more than 10% of your overall asset allocation, it’s probably too much. A diversified portfolio is the cornerstone of a risk-adjusted investment strategy. Since single stocks don’t move like the broader market, you’re exposed to much greater risk. Whether
Stocks and bonds differ in many aspects, including the risk and return investors can expect. Because of these differences, stocks and bonds accomplish different things in an asset allocation. When you own a stock, you’re buying a piece of equity ownership in the company. With bonds, you’re buying the issuer’s
Although past performance is not indicative of future results, history can be a helpful lens to view bond performance during past recessions and bouts of volatility. Swings in the financial markets also highlight the benefits—and limitations—of diversification. During times of economic, financial, and political uncertainty, investors often wonder where to
Don’t stress out about every headline, stress test your retirement plan instead. Markets move every day and the news cycle is 24-7. Unfortunately, headlines often leave investors wondering what the news means for their portfolio and financial outlook. We can’t predict the future, but we can control how we prepare a
How do bonds work and why buy them in your investment accounts? There are several benefits of investing in bonds. Most notably, bonds provide investors with income, diversification from stocks, and stability compared to riskier asset classes. There’s a lot to know about bonds, but here are the bond basics
Amidst the vast uncertainty in the markets right now, it’s more important than ever for investors to understand the benefits—and limitations—of diversification. Having the right investment mix for your situation is critical in good times in the financial markets and during downturns. While you can’t control the ups and downs
Setting your asset allocation is like drafting architectural plans when building a home; it provides a map to guide the construction of your investment portfolio. Developing an asset allocation is a multi-step process, which is challenging for many investors, and for good reason. A Google search for the term “how
There’s plenty for investors to worry about when their financial livelihood is on the line. When planning for major financial decisions such as retirement, individuals often focus on the severity of a market downturn, underestimating the impact that timing and cash flows can have on their portfolio. The sequence of
Like many things in life, managing your own investments becomes more complex as you get older. For young professionals just starting out, it makes sense to learn the basics of how to manage your investments and do it yourself. Later in your career, there is more wealth to protect and