With Stocks Up, How’s Your Portfolio Risk?

By Johannes @ Adobe Stock

With stocks having a banner year, today may be a good time to look at your overall asset allocation. Do you have enough bond exposure? Are you generating income to help guide your retirement life? What if the market declines by a third? Will you be able to ride it out? Remember, stocks can stay down for a long time. Look what happened to the Dow Jones Industrial Average from the mid-60s to the 1980s. Not pleasant for equity investors at the time.

Your Survival Guy is a natural optimist. But I’ve seen my fair share of disasters, both manmade and natural. The manmade ones can be the worst. Because it’s today’s market, being up so much this year, that guides investor emotions. When stocks go up, the average investor feels they will continue to go up.

Then, like frogs in a pot, investors look at a year’s worth of declines and wonder if it will ever turn around. Too late. Then all they can think about is whether stocks will ever go back up. We’ve been through some brutal markets so far this century.

And like clockwork investors have short-term memories of how bad it really was. They don’t think about the fact that today they’re quite a bit older than they used to be and don’t know how their emotional response will be because they’ve never been this old without a paycheck.

Today, not after the fall, is as good a time as any to run back the clock. It’s a good time to take out a napkin and look at how you’d respond if stocks were down 30% this year instead of up. It happens. Put your age in bonds and think about how you’d weather a future storm.

Action Line: One of the hardest things for investors to do is to reduce stock holdings while markets are up. But this shouldn’t be about stock prices and where they are going. It has to do with you and making sure your investments reflect your risk tolerance. To find out, email me at: ejsmith@yoursurvivalguy.com

Originally posted on Your Survival Guy.