How does one maintain a Balanced Portfolio in a rising interest rate environment? or What does a Balanced Portfolio mean? My Point: What about NOW? We are now in a time of RISING interest rates. What does that mean? Well, let’s look at one more simplistic example on the effects of rising interest rates on a bond.
How does (or could) one Reduce the Risk in their Portfolio? One of the first things to define in risk assessment is, “What do YOU consider Risky?” For my purposes, I’m going to refer to the broadest of classes: Stocks, Bonds and Cash. Next, to measure risk, we use standard deviation, which measures the dispersion of data from its expected value. [The standard deviation is used in making an investment decision to measure the amount of historical volatility, or risk, associated with an investment relative to its annual rate of return.] Long story short, the higher the standard deviation, the more volatile the investment…which means more risk.
The following is our starting three-step process when considering Sectors…and how we apply them to our specific investment portfolios. Step 1) Let’s examine the demographics of our society…i.e. who has the greatest need of their savings and investment portfolios? We believe that it is the group closest to retirement and may leave the workforce. In the current case, the ones facing imminent retirement are the Baby Boomers, followed by Gen X and Gen Y, with the Millennial's as the newest group in the workforce.
Asset Class vs Sectors: a discussion We’ve all seen the ‘tic-tac-toe’ boards on our financial statements…you know, the rows are labeled Small-, Medium- and Large-cap. And all of the columns are labeled Growth, Blend and Value. Well, ALL stocks fit into this grid…but what does that tell us. We think, NOT enough.