Larry Berman: Here's what a portfolio should consider
Every week viewers ask us questions about what stocks and ETFs they should buy. This week we are participating in two webinars that will focus on this question. We are going to take one step back from the investment choice and try to answer this question. Perhaps what you should be buying should be more about your specific situation than the MER of the ETF or the merit of the current price of the stock. What if your risk tolerance desire does not meet your risk required? There are solutions, you just need to think a bit outside the traditional box.
A portfolio should be designed to consider the following:
- Risk Required – the return required to achieve your goals
- Risk Capacity – the extent to which your plans would be derailed by inevitable market pull-backs or other factors
- Risk Tolerance – the level of risk you prefer to take
Most do not consider the risk side enough; they generally focus on how much they can make if they buy something (that’s the typical question we see here on Berman’s Call). For those that consider the risk, they think about the risk they prefer to take. A good financial plan will help you with knowing the risk you need to take to achieve your goals. Your capacity (not emotionally, but financially) to withstand corrections that could derail your plans should be your focus.
When one focuses on the level of risk you want to take, it inevitably leads you to a lower volatility portfolio. Historically, there was nothing wrong with this by the way. Unfortunately, the way to do that historically is to have more fixed-income in your portfolio. Going forward with the likelihood of a zero-rate world and percolating inflation pressures, the fixed-income part of your portfolio is beyond stressed.
Current yield of VTI (Vanguard Total US Market ETF) and AGG (iShares Core US Aggregate Bond Universe). The 60/40 portfolio still offers an extremely low yield. And with valuations as high as they have ever been and the dividend yield as low as it has ever been, the risk one needs to take has never been higher.
You have probably heard that “past performance is not indicative of future results and there can be no assurance that the future performance of any specific investment, investment strategy, or product will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation.”
Our Fall 2021 Investors Guide to Thriving Virtual Roadshow will continue this week with special Guest Monique Maden and will run every week until Dec. 9. Each week we will cover a key part of your portfolio from how to protect against inflation risks to generating yield and income. The second webinar I will be on will be a virtual keynote at the Raintree’ LIVE Virtual Investor Conference on Oct. 19 and Oct. 20, where you will get the opportunity to engage, speak to, and learn from some of Canada’s greatest finance experts, CEOs, portfolio managers and investment managers. Use Coupon Code LarryB for a free ticket.
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