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Evaluating Risk In Your Investment Portfolio

by admin on March 15, 2010

Q&A with Rob Goshen, Senior Vice President, Investment Advisory for Mesirow Financial

Q: How should people at different stages of their life should be evaluating potential investments for risk level?

A: What is risk? Risk is both the temporary and permanent changes in value of one’s portfolio over time. Clearly as we get older, we have less time to recoup the temporary reduction in value so as we age, we need to focus more closely on the variances within our portfolios. However, as was learned in 2008, the reduction in portfolio values can be drastic even to a younger investor. Investors who thought they had a higher risk tolerance quickly learned that they needed to lower their risk tolerance. In addition, through the plethora of Ponzi Schemes uncovered over the last 2 years, unfortunate investors learned that permanent loss of capital is an all too real possibility.

Q: How should investors be allocating their assets in their portfolio to manage risk?

A: Investors should hold diversified portfolios made up of many different asset classes, not just many different stock positions. Keep leverage down to a minimum, don’t overpay for an asset, hold some percentage in Gold and/or bearish bets in case we see a repeat of fall 2008.

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