[Investing Made Difficult]
In the May 2, 2011 edition of the Wall Street Journal (WSJ), there was an article titled “Stress-Test Your Portfolio” by Jonathan Burton. The subtitle was “How to prepare for risk known and unknown”. It is my belief that the average person reading the article would come away totally confused.
There are few meaningful pieces of advice in the article. One being that a portfolio should be diversified worldwide. But then there is Bernard Baumohl of the Economics Outlook group in Princeton NJ who advises reviewing each of your holdings, assessing the vulnerability to a potential shock and then making sure you’re not overexposed to any one country or sector. Further, Baumohl suggests you consider liquidity or how easily you can sell the asset if the need arises.
Then there is the advice of David Rosenberg, chief economist of the Toronto based firm of Gluskin Sheff, who says “It’s a matter of assessing risk, of identifying opportunities and basically looking at the forest past the trees. It’s not about market timing”.
Much of what Baumohl & Rosenberg are suggesting involves forecasting what is going to happen in the future. No one knows what is going to happen in the market in the short term. We do know that the next 100% movement in the market will be up.
When we set up a portfolio for a client, the first thing we do is assess the risk in the portfolio. We address the question of how much the portfolio may differ from the expected return in any one year based on historical results, knowing that past performance is no guarantee of future results. The client has a benchmark from which to consider how much the portfolio might lose in a year. Since we can’t and don’t forecast the future, we concentrate on having a portfolio that reflects the risk tolerance of the client, that is diversified in 40 plus countries, across 17 different asset classes and we rebalance back to the targets every quarter. The target is the mix of stocks (equities) and bonds (fixed income) in the portfolio. This is investing made easy.
Why make your investing experience more complicated?
Bill Mullen CFP, MBA
Investor Coach
4315 Hidden Cove Rd
Park City UT 84098
435-655-0508
435-655-0759 Fax
801-916-7283 Cell
bmullen@catapulsion.net
www.billmullen.org
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