Do a Portfolio Review!

Andrew Prentice |

A traditional stock and bond portfolio has done well over the last decade, but with valuations for US stocks at historical highs and bond yields at historical lows it may be tough for the same portfolio to repeat in the next 10 years. Now is a great time to review your portfolio to see if any changes need to be made to help meet your future goals. Typically, there is no silver bullet fix to a problem, but there are some strategies that can be used to reduce risk, help returns and maybe even both. These items individually won’t be the solution but together may be able to move the needle.

  1. If you have held a US centric portfolio congratulations! Timing has worked in your favor. But going forward it may be beneficial to diversify into some non-US investments that haven’t had the valuation gain of US companies.
  2.  In the US, Value companies have not had the run up that Growth companies have had, yet historically have provided a slight premium. Diversify some of your stock exposure to value companies in order to try and capture that premium.
  3. With traditional core bonds delivering some of the lowest historical yields, it may be beneficial to diversify this part of your portfolio in order to reduce interest rate risk as well as get a higher potential return. Be careful though of the additional risks you take on when moving away from traditional core bonds.
  4. Another option to diversify your bond exposure is to use a fixed indexed annuity. This can provide you with the downside protection sought from bonds, yet give the potential for higher return. Again, use caution when employing this strategy, as you usually have to give up some liquidity.

Each of these ideas comes with its own tradeoffs and risks so make sure that they are appropriate for your situation.