There are many factors that can affect your portfolio, such as the recent volatility in the market and low interest rates. This in turn impacts the total return you receive in your portfolio, which is a combination of interest earned as well as capital gains and losses. This financial war, meaning the challenge those of you face as you are either saving for retirement or already retired, can have a significant impact on your portfolio.
To help illustrate, let’s say there are two cars driving down the road, one is a large truck and the other is a small sedan. Both cars get you from Point A to Point B. However, if they had an accident and crashed into one another, which one would be more likely to keep the passenger safe? Most likely the truck will do a better job protecting the passenger.
The same can be said about portfolio options and their capital gains and losses. Portfolio A may have a smaller rate of return compared to Portfolio B, however, Portfolio A also has less risk, so in the event of a market correction, such as 2008, your capital losses would be less in Portfolio A compared to Portfolio B. Every day, people come into our office and they think they have Portfolio A and we run a stress test and find their most likely in Portfolio B and are subject to greater risk than they expected.
What kind of risk are you taking in your portfolio? Take a proactive approach by ensuring your assets are protected and have a stress test done on your portfolio to identify your current risk exposure. Give us a call (775) 853-9033 and speak to one of our retirement planning specialists about scheduling a stress test today.
You can also tune into Redefining Retirement this Sunday at 5:30pm on Channel 2 News, where we will discuss further on the financial war that is being waged against those of you who are saving for retirement and those of you who are already retired and why capital losses affect your portfolio.