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Don’t Think Like a Turkey. Do This To Help Get Your Portfolio Healthy

The most-asked question by new clients to me is this. “What do you think about investing in stock XYZ?” You can insert any company from Amazon down to a small cap stock. My initial reaction is simple. I don’t have to do fundamental research or look at the technicals. All investments, they have their kryptonite, the best stocks, the worst stocks. They have their times where they don’t perform well, and once you know that, then you’ll be able to understand what I’m about to say next, which is this. It boils down to, how will it affect your portfolio’s risk makeup? What that means is when you insert this stock into your portfolio, what’s it going to do to your risk? Is it going to increase your risk? Is it going to decrease your risk? Is your risk going to stay the same? We look at that before we look at any type of returns because risk is the name of the game.

Okay, so now we’ve identified the question. The next step is to figure out what to do to help get your portfolio healthy or to keep your portfolio on track. Number one, figure out what your risk is. This is what you’re comfortable losing in a six-month span, in a one-year span, in all kinds of different time horizons. There’s a couple of ways you can do this. You can sit down and figure it out yourself. If the stock market’s down 20% in the next year, how much of that am I comfortable losing? If the stock market’s down 10% in the next six months, do I want to be down 10%? Do I want to be down 5%? Do I not want to lose any money? Once you answer those questions, you’ll be able to determine what your risk is. Now, if that’s too convoluted for you, we have a simple way of doing it. You can take our Risk Profiling questionnaire for free and we’ll give you a risk score between a 1 and 99, with 99 being the highest, ultra-risk, and 1 being super-low risk. Finding your risk preference is probably the most important part of your investing because if you misinterpret your own risk, chances are you will not be able to ride out the next big storm that comes that direction.

Once you have your risk, then the next step of the equation is to build a portfolio that matches your risk or to adjust your current portfolio to match your risk. In doing so– we’ll go back to the previous paragraph’s questioning. For example, If you decided you want half the S&P 500’s risk meaning if the general stock market’s down 10% over a six-month period, I expect my portfolio to be down half of that, you’re looking for half of the stock market risk. Well, then you’d want to start building a portfolio with an overall beta of 0.5, which means it will move, or it will grab about half of what the general S&P returns.

Now, again, you could also take your risk score that you got from us and if you like, we can help you build a portfolio that rates at a 62 score. A perfect match, if you will., right?

Once you build your portfolio, you’ll then want to stress test it. How does it perform in different scenarios? How would have it performed in the 2008 stock market collapse? How would it perform during the Trump bump? How would it perform during an interest rate increase? By doing so you’ll get a feel for what to expect in the more extreme market situations that will certainly call on your patience. And then obviously by creating a set of expectations, you’ve got a much better chance of setting your emotions aside and withstanding the fear and greed that will inevitably come up.

As you can see, when you start to do these things you get so far away from answering the question of, “What do you think about XYZ?” We ended up digging deep into, “Okay, who are you? What are your expectations of risk? Okay, now here’s a portfolio that matches who you are.” So instead of what you think a stock might do, you’ve turned into, “Here’s what I expect from my portfolio based off of who I am.”

If it’s something you’d like us to give you a little bit of help with, you can get it right now by clicking the link below and getting your risk score.



Take Care,


Jarrod Adams
10130 Perimeter Parkway Suite 200
Charlotte, NC 28216
P:(704) 996-4243