Over the years, the tolerance level for risk in investment portfolios may require some fine tuning. Often as people approach retirement age it is desirable to mitigate risk. When investors are younger, they have more time and resources to bounce back if an investment causes a loss. Here are a few ways to mitigate portfolio risk and security in the future:
Get Rid of Investments that do not Rise with Inflation
Investments are subject to the pressures of inflation. If the investment is only paying a 2% return and the inflation rate is 4% then the investment is losing buying power every year. While a portfolio can withstand a few years of this type of loss, over time it can have a significant impact on the portfolio. Cashing out these types of investments and putting the capital into a higher return investment can solve the problem.
Diversify the Portfolio
A diverse portfolio can reduce risk. If all capital is invested in only a two or three investments and one starts losing, the losses can add up rather quickly. Spreading out investment capital into a diverse portfolio can ensure that exposure to risk is minimized. Investing in stocks, bonds, mutual funds, real estate, etc., can all be part of a solid portfolio.
Mutual Funds and Market Risk
When the stock market takes an overall dive, the value of mutual funds can go down accordingly. Mutual funds are a great way to invest but they are not a total investment solution. Although they do spread out investment capital, they are subject to market fluctuations. Not all funds have the same risk level either. If a portfolio is invested in a mid-cap fund then the level of risk will be higher than if invested in a low-cap mutual fund. The higher the risk, the higher the potential for greater returns if the stock market goes up.
Good Advice=Less Risk
Good management of a portfolio can help identify areas of risk and minimize them. Over the years financial goals and lifestyle changes can make changing investment portfolios an essential component of future well-being and success. Investment professionals such as Pete Briger of Fortress Investment Group have years of experiencing helping people protect their investments and plan their financial future so they can enjoy and maintain a comfortable lifestyle.