Portfolio Management During Turbulent Times
Portfolio Management During Turbulent Times – Weather Proofing Your Investment Portfolio
There’s no doubt we continue to live in turbulent times. Between the challenges and uncertainty of the pandemic, the instability in eastern Europe and ongoing supply chain issues, effective portfolio management is a prominent topic amongst investors. So what steps do you need to take to make sure your portfolio is up to weathering these storms which sometimes seem to come out of nowhere?
What Is Your Objective?
First and foremost it is important to set clear objectives, and to keep those objectives in mind whenever you are making a decision about where or when to invest, or divest, in any given asset. Your objective may be to grow your wealth, preserve capital or generate income. Whatever it is now, it is likely to move over time, so make regular reviews of your objectives to make sure your portfolio is still meeting your needs. Regardless of your objective at any given time, it should always be the guiding principle for decision making.
Understand Your Risk Profile
The next factor to always bear in mind is your Risk Profile. Again, this is likely to change over time, but should always be applied to any investment, and the impact it has on the risk balance of your overall portfolio. Our article on Modern Portfolio Theory and the Efficient Frontier can give you some pointers on how to effectively manage this aspect of investing.
Asset allocation is what drives your portfolio performance. What proportion you allocate to each of the major asset classes has a more profound effect on both the returns and the risk profile of your overall portfolio than the individual asset selection.
Asset allocation allows you to determine your level of diversification, and when this is balanced carefully through a mix of assets which move independently of one another it can maximise return whilst minimising risk. Bear in mind that a higher risk portfolio may at times fall in value more significantly than a lower risk portfolio, over the long term it is also more likely to generate higher returns.
Our article on Asset Allocation Strategies will help give you an idea of your options, which include cash, fixed interest, property, and shares, as well as managed funds which can be effective in both rising and falling markets.
While it is certainly possible to mis-time the market, it is never too late to ensure your portfolio remains balanced according to your objectives and risk profile. While you may find there are short term losses if you have missed the peak, or the trough, of the market wave, it has been shown again and again that time in the market is more important than timing the market.
Patience & Calm
For most people this is perhaps the hardest lesson of all. Rudyard Kipling’s poem “If” starts with “If you can keep your head while all around you are losing theirs…” and this is never more true than when watching a turbulent market. But if you are confident your portfolio reflects your current objectives and risk profile, and can hold your nerve, you may find you come out the other side stronger.
Help Is At Hand
Whether you understand the complexities of the stock market or not, having an impartial advisor who is not emotionally involved can make all the difference to your success. A good financial advisor will ensure you don’t end up panic buying, or panic selling, and keep your portfolio balanced to ensure it can withstand market volatility, preserve your capital, and continue to meet your objectives.
If you would like advice on whether your portfolio is set up to meet the challenges ahead, Manly Financial Services have the experience and knowledge to help you. Give us a call on (02) 9976 3388 or contact us via the below link.