MarketWatch reports 2014’s top 10 financial advisors’ average portfolios were over three times riskier than the broad market itself. Each year, market analyst Mark Hulbert ranks the performance of the top 10 financial advisors. He then tracks the risk associated with these outperforming portfolios.
2014’s average portfolio risk was 3.32 times higher than the general market. That crushes the risk level hit just prior to the Dot-Com bust (2.58). And it’s the highest average risk since 2006 (when it hit 3.85, prior to the financial crisis).
The article goes on to say the advisors’ risk levels are correlated with investors’ memories. The sting of a major crash fades over time. Investors see the markets rise after a crash… and forget the pain of the bust. They fear missing out on new gains more than suffering a new crash. In time—after most of the gains have been made—they jump back into the markets. That’s when they get slaughtered.
Now, Hulbert’s risk indicator does not mean it’s time to run out and sell everything. But it’s more evidence market conditions will remain volatile.
Regular Daily readers know no one should be invested in these markets without following the Palm Beach risk-management protocols. And the most important risk-management tool of all is appropriate asset allocation. This lets you keep a portion of your wealth in volatile markets for great gains… while preventing your total investment portfolio from ever suffering a catastrophic loss.
Pretend for a moment you are a shipbuilder. Your task is to make a safe vessel. Would you build one wide-open hull that runs the length of the ship? Or would you place watertight bulkheads throughout, breaking it into compartments? Of course the wise shipbuilder would “compartmentalize” his ship. That way, a hole blown in one section of the vessel could not send the whole thing to the bottom.
Appropriate asset allocation compartmentalizes your wealth. By allocating your funds across different asset classes—like stocks, bonds, real estate, precious metals, cash, and more—you ensure your financial ship will always survive… even if a mine should ever blow a hole in one portion.
This is why we say asset allocation is the single most important factor to the safety and growth of your wealth. It’s a thousand times more important than good stock recommendations. But detailed allocation advice is complicated to produce… and that’s why most investment advisory services ignore this vital information.
Not at the Palm Beach Research Group. We’ve contributed well over 100 man-hours to creating our 2015 Asset Allocation Guide. You won’t see anything like it anywhere else… and the feedback we’re receiving is proving our efforts paid off for you.