How to Help Minimize Risk in Your Investment Portfolio
The first step in minimizing risk in your investment portfolio is knowing what your investment goals are and making sure your portfolio is aligned with these goals. For example, if you are investing for retirement and that is 10-20 years off then you should be investing for the long term and choosing investments with a long track record. If your goal is to save money for a home purchase or vacation within the next year, then you shouldn’t be risking your money at all and it would be better in a short-term investment vehicles.
If you are investing for long term goals diversifying your investments is a great way to help minimize risk. We never recommend investing in one stock or even one asset class with your money. Choose a diversified mix of investments that take your retirement savings goals and risk tolerance into consideration. A trusted advisor can help you do this.
Another helpful way to minimize risk is to ensure your investment portfolio is routinely being reviewed and rebalanced. Over time your once perfect asset allocation selected for your investment goals and risk tolerance will gradually drift out of balance as the different asset classes earn a different rate of return (this is a good thing and why you need to be diversified!). Rebalancing is the process of buying and selling portions of your portfolio to set the allocation of each asset class back to its original state. Think of it as a tune-up for your car: it allows you to keep risk levels in check and minimize risk at the same time.
Information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
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