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Mitigating Portfolio Risk: Understanding and Planning for Investment Time Periods

October 27, 2021

Understanding and identifying the risks that you face in developing a financial plan is the first step in building a solid financial future. The second step is being able to implement an effective plan to measure, monitor, and control the risks that you face as an individual investor. At Schmerling Financial Group, we can help you with these objectives.

Sometimes the hardest part is understanding the language. Terms like asset allocation, interest rate risk, or sequence of returns may be foreign to you. It is our job as advisors to help you by explaining these concepts and developing strategies to mitigate the risks that can impact the value of your portfolio. In short, we want to help you make sound financial decisions based upon a solid plan and avoid making poor financial decisions either because of emotion or due to a lack of knowledge.

Where do you begin?

While this question depends upon such things as your goals, risk tolerance, and even your age, there are some common things all investment plans should include. Developing a portfolio that is appropriately diversified with exposure to different asset classes is a fundamental building block in investment planning. Periodically rebalancing the portfolio and planning for distributions are other aspects that should be included in your financial plan.

One of the risks that investors face today is making sure they can withstand market volatility because they may need to access a portion of their investments. Selling long-term investments when the market is down to meet current expenses is not sound financial planning. In this regard, it is important for investors to plan for income that they will need in the short term. Usually, this takes the form of very liquid assets that generate minimal returns, if any. The advantage to this type of account, is that it is available for withdrawal without worrying about market performance. In other words, you don’t have to liquidate a long-term investment at the worst possible time.

However, there is another scenario that many investors overlook. That is having a portion of your investment portfolio that is available for withdrawals that can still grow and offer an inflation hedge but be protected from significant market volatility. We have some very sound ideas on what types of investments should be in this part of your portfolio. In addition, we continue to advocate for a portion of your portfolio to be invested for long-term growth. Planning appropriately for the short-term and intermediate needs, provides peace of mind to leave the long-term assets invested in times of market distress.

How Can We Help?

Our team at Schmerling Financial Group is available to help you understand the risks that you face as an investor and develop sound strategies to control those risks. We provide tailored, individualized plans to connect the pieces of your financial future. Let us know how we can help.

The views and opinions expressed in this article are those of the financial professional and do not represent the views and opinions of Avantax Wealth ManagementSM or its subsidiaries.