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Prepare Your Portfolio For A Turnaround

Raj Mundhe, CRPC
06/10/2010

The current bear market has been one of the most tumultuous ever for the financial markets—and among the most difficult for investors. But even the most severe bear markets turn around. Many investors may have made sensible adjustments in response to the crisis. As a result, however, their portfolios may no longer be aligned with their long-term goals. What’s more, their current holdings may not be the ones that will benefit when the market does begin to rise.

Will you be ready when this economy turns upward and markets begin to recover? Even if your portfolio has suffered losses as a result of recent volatility, a long-term view is critical to helping you achieve your goals. So a consistent, patient approach is important. Your financial professional can be particularly helpful in this regard—and in helping you follow these basic principles:

Don’t try to time the market—It may be tempting to move in and out of the market in search of fast gains or to avoid losses. But timing the market can have a big impact on opportunity lost if your assets are out of the market when it begins to move upward.

Keep your investment goals in mind—At times like these, it is a good idea to revisit your goals to ensure that your asset allocation and investment strategy are correctly aligned. Your Financial Advisor can help you define and categorize your short-, medium- and long-term goals and serve as a sounding board as you prioritize your goals and balance them to help meet your needs. By helping you develop an investment strategy that focuses on what matters most; your Financial Advisor can help you avoid making decisions based on short-term emotions.

Remember investing fundamentals—Balancing risk and return potential in your portfolio through asset allocation can be critical in this economic environment. Your Financial Advisor can work with you to help you assess the amount of risk that is appropriate for you and help you apportion assets among the basic asset classes, such as cash, equities and fixed income securities. Whether you seek optimal returns or to generate income from your portfolio, your Financial Advisor can help you determine an overall asset allocation and also help you diversify your portfolio within these asset classes.

Diversify your holdings—If your portfolio is properly diversified across and within asset classes, you may be able to take advantage of sectors and markets that are performing well, while protecting your portfolio from weaker performers. For example, in the equity sector, many investors are turning to companies with a steady record of consistent or maintained dividend payouts or payments, such as companies that focus on consumer staples like health care and telecommunications. While these types of stocks may help mitigate risk and volatility, fixed income securities, particularly those of high credit quality, may help to provide stability and diversification.

Are we on the verge of a recovery? Maybe not right away. But investors will want to be ready when the trends turn upward.



Asset allocation and diversification do not assure a profit or protect against a loss in declining financial markets.

Past performance is not indicative of future results.  Principal value and return of an investment will fluctuate with changes in market conditions.

Because of their narrow focus, sector investments tend to be more volatile than investments that diversify across many sectors and companies.

Fixed income securities are subject to interest rate risk, credit risk, prepayment risk, market risk, and reinvestment risk.  Fixed Income securities, if held to maturity, may provide a fixed rate of return and a fixed principal value.  Fixed Income securities prices fluctuate and when redeemed, may be worth more or less than their original cost.

Articles are published for general information purposes and are not an offer or a solicitation to sell or buy any securities or commodities.  Any particular investment should be analyzed based on its terms and risks as they relate to your specific circumstances and objectives.  

Investments and services offered through Morgan Stanley Smith Barney LLC, member SIPC.

(Raj Mundhe, CRPC ® is a Morgan Stanley Smith Barney Financial Advisor located in Waltham, MA and may be reached at 781-672-5111 or http://fa.smithbarney.com/rajmundhe. )

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