With an acceptance that corrections happen, the question is, “How can I protect myself from the next correction?”
There are many ways to reduce risk of stock market corrections, but one way we focus on reducing risk is through diversification of asset classes as well as diversification of portfolio managers.
What is a Portfolio Manager?
A portfolio manager has discretionary control over your assets and is free to trade on a daily, weekly, or monthly basis, as long as it adheres to the fiduciary standard and is done in your best interest. This means a professional portfolio manager is watching your portfolio on a daily basis, ready to make any changes they determine are for your benefit.
Why Multiple Portfolio Managers?
Each money manager brings a unique perspective as to how they manage accounts while mitigating risk. In certain stock market conditions, one portfolio manager may generate better returns while another may not. A year later, when the conditions have changed, the other portfolio manager may do better. Not all portfolio managers do well all the time. This is where diversifying assets between multiple money managers could be beneficial.
Why is that different from my stockbroker?
With a traditional stockbroker, we often see accounts loaded with commission based mutual funds. We typically see multiple mutual funds in one account and frequently see the same holdings among the different mutual funds. A person could have 10 different mutual funds that each contain the same stocks, which results in a lack of diversification for the consumer. Also, this is passive management with very little response to changes in the market place.
A professional portfolio manager is tactical in their management and is ready to make appropriate changes as needed when the market conditions change.
Get a second opinion.
Call our office today at (480) 428-8005 to receive a no-cost review of your current portfolio. Our review will assess the amount of risk within your existing portfolio, unearth any hidden fees you may have been unaware of, and uncover any duplicate holdings you may have within the mutual funds in your portfolio.
Written by Marc Montini, IAR with the Montini & Farrah Tax Advisory Group. Marc is a licensed fiduciary who provides tax and retirement planning for his Baby-boomer clients.