The broad economic outlook currently supports further bullish momentum for the rest of 2021. However, regardless of the optimistic movement seen recently, none will deny that vast uncertainty and volatility still govern the market today. As a result, more and more people are slowly transitioning their investment strategies and plans for the latter half of 2021 to account for the bullish trend, gradually opening up to more market exposure while taking care to limit expected risk in proportion.
However, one common problem retail investors and active traders face is the extreme lack of consistent portfolio evaluations, leaving their investments at the mercy of market swings, both failing to cash in on once-in-a-lifetime opportunities and suffering from sudden bearish drops. Of course, we agree that none can time the market perfectly, and trying to do so is a fool’s game. Still, we also firmly believe that regular portfolio assessments help ease the impact of fundamentals and provide glimpses of when and how to perform during uncertainty.
Absence Of Portfolio Assessments Increases Exposure To Risk
Although common knowledge would have many people believe that we should let our investments sleep and let dollar-cost averaging perform its magic, this principle does not work its best during extremely volatile markets still prone to sudden crashes and bearish pivots. As a result, the absence of regular portfolio assessment in today’s markets inevitably increases exposure to unnecessary risk and losses, namely, (1) high maintenance fees, (2) economic shocks, and (3) underperforming asset classes.
- High Fees Are Hurting Your Cash Flow: Firstly, it’s evident that different categories of mutual funds, from your index funds to equity funds, offer an immediate way to spread out your investments without investing in each company separately, all for maintenance and management fees. However, during times of economic crisis like today, these fees are also prone to volatility. These fees could hurt your cash flow if you don’t monitor the expense ratio during not-so-pleasant economic circumstances.
- Failure To Prepare For Economic Turbulence: In addition to high fees, the economic news and turbulence felt throughout the markets are also risk factors, and while we can’t forecast when they happen and their apparent effect, preparation must always come first. As a result, the lack of investment portfolio reviews causes oversight, and in the worst-case scenario, all you would find on the day of a crash or sudden bearish run is nothing but red markers and losses on your account.
- Lack Of Proper Asset Allocation And Review: Lastly, gleefully investing and following the same old strategy often leads to the consolidation of your portfolio into a single asset type. And while that may not seem like a huge issue at face value, lack of proper asset allocation and diversification is still akin to “putting all your eggs into one basket” and exposing yourself to increased risk in the market. Moreover, say you religiously invest all extra earnings into stocks when you could’ve followed cryptocurrency instead, missing out on the sudden bullish jump.
Update Your Portfolio According To Risk Tolerance And Financial Security
Given the effects and circumstances mentioned above, it is non-negotiable that everyone must update their investment portfolios to meet the demand for a reevaluation of risk tolerance and establishing a goal for financial security. And to achieve this objective, we strongly recommend that you (1) diversify your current investments, (2) pursue different income-generating opportunities, and (3) consult with a financial advisor to relay any other pressing concerns.
- Diversification Of Investment Instruments: Assets carry different levels of risk, and because acquiring risk with every new investment is inevitable, we must leverage our market exposure through diversification. For example, instead of funneling all your extra savings into index funds and a retirement plan, we recommend balancing your portfolio with commodities and real estate. Plus, if you fear market volatility is at its peak, you can also opt for time deposits and government bonds as well.
- Pursue Different Active Income-generating Opportunities: While most people strive to meet financial freedom through passive income, we still recommend that you pursue active income-generating opportunities to supplement your portfolio. For example, you could work with a close friend to form a partnership or explore the opportunity of franchising businesses, both of which you can scale and grow over time. Yes, a business venture may be difficult to start, but it’s an active investment that will bolster your portfolio.
- Consult With A Professional Financial Advisor: Last but not least, there’s only so much you can cover by yourself and review before you run into issues or overlooking key concerns. And to prevent this from happening and receive a reasonable second opinion from a professional, we strongly recommend consulting with a financial advisor. It’s always smart to surround yourself with like-minded people, and a trustworthy financial advisor will help you navigate tricky situations.
A Safe Financial Future Demands A Resilient Investment Portfolio.
In conclusion, one must revisit and review their investment portfolios if they want to secure a safe financial future ahead. So, before the market makes any sudden movements, drops, and breaks from levels of resistance or support, do your due diligence to assess.