How To Balance Risk in Your Portfolio

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Stock market soaring and risk management. One thing I try to get across to people out there is that when it comes to your portfolio, comes to your portfolio, and everyone’s situation is unique and different, everyone’s at a different position in life, you cannot let risk lead to ruin. You cannot take on a certain amount of risk

in your portfolio so therefore that it leads to ruin. Again, people, the whole FOMO idea out there where, if I only went all in on this sector or I only own that sector, man, where would I be? Retirement planning. Like I said, everyone’s situation is unique and different. So people, they want to plan, they want to stop working.

they’ve built up a portfolio. How do you go about handling that in a world where things come out of nowhere? Things come out of nowhere. Nicholas Taleb, NASA Nicholas Taleb describes it and probably one of the major bestseller as far as risk management concerns, the concept of black swans. Black swans, stuff that comes out of nowhere that you do not see.

You don’t see them coming. They happen. Okay, randomness happens. And, you know, I’ve talked about it again, it’s it’s Talib’s concept. I’ve talked about it on the show, the concept of being anti fragile, where you get exposed to risk. And you’re not just robust where you would stand it, you come out better on the opposite side. Now, I want to put this in terms

I’ll throw myself into this mix right now. I am not planning for retirement. I’m not. I am putting money away. I dollar cost average invest on a regular basis, but I have no plans at all to retire. Now, again, that could change. That could change and that would be a

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Fundamental massive change in regards to how I would be managing my portfolio personally as It stands right now. For example, let’s say Let’s say that there was a major market sell-off or a bear market in the market goes down by 25 % Obviously my portfolio would get hit with that everyone’s portfolio would get hit with that but for someone like myself

That’s dollar cost averaging. That’s not there. I’m not going to be touching any of that money.

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What do I care? What I, that’s actually good for me. That’s actually good for me because guess what? I can withstand that shock. I’m gonna be buying things on sale and taking advantage of it. It’s like it did. I explained this. People who held their head up and I showed a little bit of courage and patience during every financial crisis and they dollar cost average, did the right thing, held on to their high quality companies. They killed it. You did extraordinarily well. Now it’s.

different. It’s very, very different when you’re retired and that money that you have set aside you need. Retirement risks are asymmetric. Meaning what? The negative risk. Okay, if you’re living off of your portfolio, living off your portfolio, the negative risks

The negative risk to a downside to 20 % in the market is far, far outweighs the positive of going up by 20%. Does that make sense? For example, if your portfolio, you’re early in retirement and you take, the market takes a 20 % or your portfolio takes a 20 % hit, that can be devastating.

That can be devastating if you need to access that money. If you are selling stocks every month to live on. Okay, very, very difficult to do. And again, you you have all of these various different simulations, Monte Carlo simulations, various different things. And you know, it’s all about portfolio optimization. We’re optimize portfolio.

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Because you’re optimizing what you’re doing is is you’re optimizing it to and Talib talks about this to conditions that are on the ground.

to conditions that are on the ground now, but the ground can shift. It will leave you vulnerable. It will leave you exposed to any sort of massive market risk, black swan events to the downside. Again, again, Talib, I highly recommend his books as far as a risk management expert. And again, it’s the things that we look to as well.

when managing portfolios is you need strategies that actually benefit from uncertainty and then limit your downside risk. Okay, you have to have, you have to have more stable assets within a portfolio when you are living off of those assets. Again, I know, you see it sometimes, you got a lot of people that are in retirement and they start getting FOMO.

They start saying, you know what, and they change their strategy. You don’t know what’s around the corner. That’s the black swan. you can’t, again, you can’t afford it. I always talk about never let risk lead to ruin. You have to have a certain amount of your assets to cover your expenses.

You don’t want to worry about your everyday expenses when it comes to your portfolio. You don’t want to deal with any of that nonsense. Okay. You want that taken care of. And of course you want to have money for discretionary spending. And there’s many different ways you can go about doing this. know, calls it, Talib calls it, and I like it too, he calls it barbell. Barbell strategy. You combine very safe assets.

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very safe assets with some exposure in the middle there to positive events. You don’t go all in. you obviously have to change your allocation when you’re at that point in time. And then you do that on both sides and you got that little bit in the middle and you got the safe stuff on the side. Again, what it does is you can handle the shocks.

If you do the eye, you put everything into all of the high risk stuff out there. Optimization based upon what the terrain is right now. No, no, because you don’t know what tomorrow is going to bring. And again, this is what we do at Markowski Investments. Everyone’s situation is unique and different. Everyone. Some people, they may be in retirement, but their portfolio, they’ve got

Assets that are set aside and cash and cash equivalents to deal with all of these things and they can be afford to be more aggressive again Everyone’s situation is unique and different, but I can’t stress this enough The need to the need to understand. Okay, the concept that you cannot you cannot let risk lead to ruin You cannot get FOMO When you’re at certain

you know, stage of your life and you need to be living off that portfolio. Watchdog on wallstreet.com.