If your portfolio was one of these cars, which one would it be? Are you driving a conservative Model T portfolio, a suitably moderate family SUV, or an aggressive Lamborghini Urus portfolio at 124 mph?
Each of these vehicles have their own benefits and detriments and you may find that you are driving a combination of these three cars, with the chassis of an SUV, the engine of a Lamborghini, and the suspension system of a Model T. Yes, that’s laughable, but you’d be surprised what people are driving out there!
Let’s take a quick look under the hood of your portfolio, pull out the dipstick to check your oil level and make an initial determination of your portfolio’s road worthiness.
The Conservative Model: The conservative model is designed for the cautious investor, one with a low risk tolerance and/or a short time horizon. This model is targeted toward the investor seeking investment stability and liquidity from investable assets. The main objective of the individual in the conservative risk range is to preserve capital while providing income. Fluctuations in the values of portfolios within this range are minor.
Moderately Conservative Model: The moderately conservative risk range is appropriate for the investor who seeks both modest capital appreciation and income from his or her portfolio. This investor will have either a moderate time horizon or slightly higher risk tolerance than the most conservative investor in the previous risk range. While this range is still designed to preserve the investor’s capital, fluctuations in the values of portfolios may occur from year-to-year.
Moderate Model: This range will best suit the investor who seeks relatively stable growth from investable assets offset by a low level of income. An investor in the moderate risk range will have a higher tolerance for risk and/or a longer time horizon than either of the previous investors. The main objective of an individual within this range is to achieve steady portfolio growth while limiting fluctuations to less than those of the overall stock markets.
Moderately Aggressive Model: The moderately aggressive risk range is designed for investors with a relatively high tolerance for risk and a longer time horizon. These investors have little need for current income and seek above-average growth from investable assets. The main objective of this risk range is capital appreciation, and its investors should be able to tolerate moderate fluctuations in their portfolio values.
Aggressive Model: This range is appropriate for investors who have both a high tolerance for risk and a long investment time horizon. The main objective of the aggressive risk range is to provide high growth for the investor’s assets without providing current income. Portfolios in this range may have substantial fluctuations in value from year-to-year, making this category unsuitable for those who do not have an extended investment horizon.
Clearly, the portfolio vehicle you choose to drive could be a purebred, or a hybrid of these different investment models. It all depends on what is most suitable for your unique financial circumstances as well as your personal tolerance for investment risk. There is danger in being too conservative just as there is danger in being too aggressive.
Your investment goals should be constructed in such a way that you hit all the green lights and reach your destination on time. Reckless driving could result in a portfolio crash, putting your portfolio in the hospital. Of course, it’s important to periodically have your portfolio examined by a professional mechanic. The last thing you need is a blown engine!
That’s why, even though you have a detailed road map, no matter which vehicle you’re driving, a lot of the momentum depends on who’s behind the wheel. We suggest you hire the services of a professional financial advisor to be your copilot or navigator so that as the miles tick along, you stay on the road and achieve your financial goals without too much wear and tear on the engine!
We hope this article about different portfolio categories has motivated you to have your portfolio reviewed by a professional so you don’t miss any turns, keep a full tank of gas, and know your brakes are working well. We’d love to take a spin with you, so if you think it’s time for a professional review of your investments, please give us a call so we can make sure you’re on the right track for the retirement lifestyle you desire. Thank you!
Joseph M. Maas, CFA, CVA, ABAR, CM&AA, CFP®, ChFC, CLU®, MSFS, CCIM
Synergy Financial Management, LLC
13231 SE 36th Street, Suite 215
Bellevue, WA 98006
ph: 206.386.5455
fx: 206.386-5452