One of the mistakes InvestorPlace analyst Jim Lowell sees investors making — and which is coming to light during this market collapse — is not making sure their risk tolerance and their portfolio are in accordance. That can result in investors losing sleep as they fret over mounting losses they were not mentally ready for. He spoke with Forbes on the topic last week.
But don’t let that fear and worry push you into making a bad move and losing yourself money.
“In the heat of the crisis, it’s rarely the best moment to make rash decisions, but you can make rational decisions,” Lowell said to Forbes.
Two Questions You Need to Answer
There are two important questions Lowell asks investors when they are thinking about reallocating their assets.
Have your goals changed? If your life and the goals you have for your money have changed, then your asset allocation will probably need to change to complement that.
Have your current income needs changed? Obviously, if your income drops or you add new members to the family, you may not be able to invest in the same way. With growing unemployment, that’s certainly a concern for some people.
If you answered “no” to both of those, then it’s probably better to wait for the market to calm down and make these decisions with a clear head. “If the investment goals haven’t changed, even if you feel the risk tolerance has changed dramatically, it’s probably not a good litmus test,” says Lowell.
He has the experience to back up his opinions. Lowell and fellow advisor Dan Wiener help investors make smarter decisions with their money through their money-management firm and through their mutual fund newsletters: Independent Adviser for Vanguard Investors, Fidelity Investor and Fidelity Sector Investor.
Pitfalls of Reallocation
Even if reallocation is the right choice for you, there are a few things you need to know.
First, the old adage of matching your bond exposure to your age comes with its own pitfalls. It’s best to really look at what you need from your portfolio when making such a decision, rather than just hewing to conventional wisdom. In fact, that rings true for every investing decision. Each person and each retirement is different.
In all, Lowell advocates keeping a cool head and making the right moves for your portfolio when the time is right.
James Lowell was once a senior financial reporter at Fidelity Investments; today, Jim is the leading independent expert on his favorite fund family — and its best managers. Thanks to his proprietary Manager Ranking System, Jim easily narrowed the field to Fidelity’s 5 Best & Finest Funds … plus the 3 worst funds! Jim may own the aforementioned securities.
