Where Smart Money Goes.®
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Where Smart Money Goes.® |
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Risk Management Investors need a disciplined, proactive risk management approach to managing their wealth and cash flow needs. Without proper risk management, clients may experience large downward wealth fluctuations during bear markets, which could force them to change not only their spending habits but possibly their lifestyle. While risk is inherent in investing, risk management should not be an afterthought. Over time, individual holding and even entire asset classes can experience significant shifts in their risk characteristics from the date of original purchase. Frequent risk assessments will identify these shifts and allow the portfolio to be adjusted accordingly so that the portfolio risk does not exceed acceptable levels. An example of a shift in risk of an entire asset class is the real estate market. Price inflation has been driven by increased speculation brought on by record low mortgage interests rates. Even though interest rates have been increasing, property prices have remained relatively stable. In fact, prices in many regions have grown faster than household income or rent, providing evidence that real estate may have become overvalued. Given these factors, we are cautiously monitoring this asset class and are analyzing our clients' holdings to determine that they are not over-allocated in this segment. We want to be proactive and reallocate resources ahead of the main market trends. Regular risk assessments and risk optimization will determine if the investor is incurring more risk than is necessary to achieve their investment goals. Risk optimization involves identifying the investment allocation percentages for the portfolio/estate that results in the lowest level of risk. Once the appropriate assets are chosen, the asset allocation percentages that generate the appropriate expected return at the lowest level of risk are determined. Copyright © 2008 Karmikel Investments - ALL RIGHTS RESERVED
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Active vs. Structured Management Wealth Transfer, Legacy Planning & Charitable Giving
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