Tips for tackling the biggest risks investors face with their portfolios | Business

If someone asked you what do you think is the biggest risk you face with your investment portfolio, what would your answer be?

Could it be the increased investment volatility we have seen this year? Or maybe it’s the risk of investment losses? Perhaps you would say that inflation has recently reached highs not seen in decades?

And an even more important question is: what do you plan to do about it?

If you consider your #1 risk to be volatility, you’ll probably want to reduce your allocation to more volatile securities such as stocks and real estate investment trusts and increase less volatile fixed income investments.

If investment losses are your biggest concern, then you will need to take this strategy even further, digging into each sub-asset class to try and reduce the risk of loss to an absolute minimum for each investment.

If inflation is the factor that worries you the most, it would probably make more sense to redirect your portfolio towards investments that should perform well in an inflationary environment, such as commodities, tips or bonds with shorter durations. .

Unfortunately, such adjustments are likely to result in losses, especially if you make them during turbulent economic times. And in the end, will these changes give you enough money to pay for your children’s education or the lifestyle you want in retirement?

Risk management

Which brings us to my pick for the biggest investment risk you face. It is simply the risk of not having enough money to finance all the things you have saved for. The many other risks that investors face – volatility risk, liquidity risk, interest rate risk, credit risk, currency risk, counterparty risk, to name a few – are actually shorter-term risks that fluctuate over time as economic conditions and investment opportunities change.

Does everyone face this risk? Those who are able to amass enough money during their working years to secure sufficient funding for their future endeavors (think Bill Gates or Mark Zuckerberg) can afford to take no risk with their savings. they want it. If you’re like most people, however, you’ll need to take on some investment risk to achieve at least the growth needed to stay ahead of inflation, especially if you end up living a long life.

You can manage this risk by breaking it down into its main components: inflation, longevity, consumption, savings and growth. You have no control over the first two, but playing an active role with the bottom three can make all the difference.

You can quantify and prioritize your future goals, determine how much savings and growth you’ll need, and then optimize risk through an appropriate investment strategy. Even if you make changes to the goals over time, you can always adjust the strategy later.

Creating a resilient lifetime financial plan and an investment strategy that aligns with and supports that plan will reduce the risk of not being able to live the lifestyle you desire before and after retirement. And in doing so, you’ll likely find that you’ll worry a lot less about those other risks — and any economic turmoil, too.

A Los Altos resident, Artie Green is a Certified Financial Planner and founder of Cognizant Wealth Advisors. For more information, visit cognizantwealth.com.