The future of the stock market is uncertain.
The night Donald Trump was elected president, Dow Jones industrial average futures dropped nearly 1,000 points. Now, the stock market is stretching into record-breaking territory. The wild swings we experienced in the final quarter of 2016 are not that normal, and the last eight years have been a roller coaster of volatility.
Are you constantly monitoring your portfolio and wondering how the next series of rate hikes, global conflicts or political decisions are going to affect your investments?
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
There are methods you can take to ensure your portfolio is not at risk of being affected by volatility. It is called non-correlated asset diversification. It’s not a sexy term; you probably won’t find #NonCorrelatedAssests or #Decorrelation trending on Twitter. But utilizing this technique can reduce your risk and cause less stress during turbulent stock market times.
It can also provide you with a steady stream of income regardless of the market’s actions.
Unconventional Investing
What if the stock market tumbled to just half its value? What would your portfolio look like? How would you react? As much as we think we would not buy high and sell low, natural human behavior often leads us to cut our losses and sell rather than stay on for the ride. In volatile times, emotions, not logic, dictate our actions.
By identifying unique investment strategies that have non-traditional risk profiles and investing in assets that act differently from stocks, you will spread your risk and therefore have the opportunity grow your portfolio while experiencing fewer bumps along the way.
Most people do not realize how correlated their portfolio is, and so when stocks, bonds and other market assets fall, it all can crumble.
A non-correlated asset is not impacted by these swings and gives you the opportunity to experience a more successful revenue stream because your overall risk is more diversified. The outcome of your non-correlated assets is independent of traditional market outcomes.
Opportunities to invest in such non-correlated risks are available in areas such as life insurance, catastrophe insurance and even litigation finance.
Long-term, more consistent gains, even when certain aspects of the portfolio are performing negatively, are achievable with a well-diversified portfolio because the risk is spread out.
Take Action!
Regardless of your overall financial goals, de-correlation is about being prepared and having contingencies. And if you are nearing retirement age, your goal is likely more focused on the preservation of your assets than consumption. Stocks and bonds are subject to dramatic changes so complementing your investment strategy with non-correlated assets will help reduce your portfolio’s volatility while securing a steadier revenue stream.
Oftentimes, portfolios are constructed in a general way and, although it may not appear to be, the assets within the portfolio are actually heavily correlated in a world that is already becoming more correlated.
How can you determine how correlated your portfolio is?
Your financial adviser should have access to the many risk assessment tools available to help figure out how de-correlated your portfolio is. An experienced financial adviser will also be able to identify truly de-correlated assets and frequently monitor your portfolio to find the right balance based on your needs and financial goals.
Now is the time to make sure you are diversified appropriately.
A founding partner of Telemus, Gary Ran serves as the firm’s chairman. In this role, he is responsible for the overall strategic direction of Telemus in addition to managing key member relationships and serving on the firm’s investment committee.
PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. This commentary is a matter of opinion and is for informational purposes only. It is not intended as investment advice and does not address or account for individual investor circumstances. Investment decisions should always be made based on the client's specific financial needs, goals and objectives, time horizon and risk tolerance. The statements contained herein are based solely upon the opinions of Telemus Capital, LLC. All opinions and views constitute our judgments as of the date of writing and are subject to change at any time without notice. Information was obtained from third party sources, which we believe to be reliable, but not guaranteed.
-
Ten Cheapest Places to Live in TexasProperty Tax Looking for a cheap place to live in Texas? Look no further. These counties have the lowest property tax bills in the Lone Star State.
-
AI Is Missing the Wisdom of Older Adults: What It Means for YouAI will increasingly affect your healthcare and finances, but young workers are primarily designing the systems and getting most of the jobs.
-
The Three C's to Financial Success: A Financial Planner's Guide to Build WealthConsistency, commitment and confidence in your chosen strategy are more critical to your financial success than finding the 'perfect' financial plan.
-
A Financial Adviser's Guide to Solving Your Retirement Puzzle: Five Key PiecesIf retirement's a puzzle you're struggling with, try answering these five questions. The answers will guide you toward a solution.
-
You're Close to Retirement and Cashed Out: How Do You Get Back In?If you've been scared into an all-cash position, it's wise to consider reinvesting your money in the markets. Here's how a financial planner recommends you can get back in the saddle.
-
After the Disaster: An Expert's Guide to Deciding Whether to Rebuild or RelocateHomeowners hit by disaster must weigh the emotional desire to rebuild against the financial realities of insurance coverage, unexpected costs and future risk.
-
A Financial Expert's Tips for Lending Money to Family and FriendsWhat starts as a lifeline can turn into a minefield if the borrower ghosts the lender. Following these three steps can help you avoid family feuds over funds.
-
Stock Market Today: Good Feelings and Solid Data Lift StocksResilience and de-escalation defined another generally positive day for financial markets.
-
What the HECM? Combine It With a QLAC and See What HappensCombining a reverse mortgage known as a HECM with a QLAC (qualifying longevity annuity contract) can provide longevity protection, tax savings and liquidity for unplanned expenses.
-
721 UPREIT DSTs: Real Estate Investing Expert Explores the Hidden RisksPotential investors need to understand the crucial distinction between a REIT's option to buy a Delaware statutory trust's property and its obligation.
