The Doctor’s Life Podcast Episode 012- Diversifying Your Portfolio

2016 started off as a poor year for stock holders. There is still a long road ahead, but there is a great chance to save 2016 by diversifying your portfolio.

Justin Nabity is back on The Doctor’s Life Podcast with some help on diversifying your portfolio and what to look for. All episodes of The Doctor’s Life Podcast are available on iTunes, and on SoundCloud. If you have an Android device, you can download a podcast player (I recommend Podcast Addict), and it will pull from iTunes. Make sure to subscribe and you will be the first to get new episodes of The Doctor’s Life Podcast. 
Diversification does not guarantee a profit or protect against a loss in a declining market. It is a method used to help manage investment risk.
Indices are unmanaged and investors cannot invest directly in an index.

The Shanghai Stock Exchange Composite Index is a capitalization-weighted index. The index tracks the daily price performance of all A-shares and B-shares listed on the Shanghai Stock Exchange.

The Nikkei 225, commonly called the Nikkei, is a price-weighted stock market index for the Tokyo Stock Exchange (TSE). It has been calculated daily by the Nihon Keizai Shimbun (Nikkei) newspaper since 1950 and the components are reviewed once a year.

As we start a new year it is a great time to reflect on the past year’s performance and consider your investment strategy. In most cases, the more that assets are accumulated the greater the need for diversifying your portfolio. For example, if we look back on 2015, investors who held only or primarily the S&P 500 had virtually nothing to show for it while others who had some or more holdings of Italy’s, France’s or Germany’s indexes performed well. Along with this both China’s Shanghai composite and Japan’s Nkkei stock average also had good results.

What this underscores is the value of globally diversifying your portfolio. By holding some of each of these indexes, the overall outcome would have been better than being limited to the S&P 500. While the US economy is a leader among the other countries, it doesn’t always perform well.

When constructing a portfolio it’s important to consider each person’s unique situation and we recommend aligning your investment allocation with your individual risk level. There are many factors that come into play when deriving this risk level but the key is to develop this risk number according to a process guided by a professional who can help factor in all of the appropriate elements.

To give a general outline of what asset classes that should be considered in a diversified portfolio, it is important to consider the inclusion of the following:
-Large, medium and small domestic stocks
-International stocks, both developed and emerging markets/growth
-Short, intermediate, long term fixed income
-Commodities
-Real estate

The more aggressive oriented an investor, the higher concentration of stocks. The more conservative, the greater the presence of fixed income.

One of the challenges doctors face is not being able to fully develop their portfolios if the majority of their investable assets are inside of employer retirement plans. This is due to the fact that there are a limited number of choices to select from. Again it requires coming up with the appropriate risk number and finding options that enable as much diversification as possible. In some cases what an investor has to do is hold an over concentration in one account and offset this by having more allocated in another so that the overall portfolio holdings are in line with the proper risk level. For those who have more income producing assets, it’s better to house those inside of qualified plans for tax purposes and swap them with growth oriented assets in the non-qualified plans and still be able to maintain the diversification target.

Investors who go in too heavy one way or the other may end up missing out on significant growth opportunities or on the other hand may be taking on too much risk which eventually comes back to bite them. Whatever your investment stage remember to consult a professional before making investment decisions so that you may gain the value of minimizing risk while maximizing returns.

 

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Go to the previous podcast episode.