Ten Ways to Identify Risk in Your Portfolio
By Kenneth Baker on January 25, 2019
From Peter Sayer’s Guide to Investment Strategy
- The old saying, “If it’s too good to be true, it probably is.”
- Returns in excess of the return offered by the government can be achieved only by taking risk
- Risk is most obvious when an investment is volatile and is least obvious when a risky investment has not yet shown much volatility.
- Investors should be particularly questioning when an adviser recommends a low volatility investment that offers superior returns
- Do not invest in something you do not understand simply because a group of your peers is doing so. A desire to conform can explain many decision that we would otherwise not take.
- Whatever your adviser says, make sure that your investments are well diversified. But keep in mind that diversification is most difficult to assess when risky investments are not obviously volatile.
- Pat particular attention if an adviser gives you inconvenient cautious advice. For example, your adviser recommends against an investment you are passionate about. Question why that is. Is the broker against it on the merits or does he just get a smaller commission on that specific investment?
- Social status may not be good indicator of honesty.
- Do not assume that because an investment firm is regulated by the authorities they have been able to check that everything is all right
- The ability to rely on good due diligence on investment managers is the key to minimizing exposure to risk of fraud.
If you spot any of these risk factors in your portfolio, you may be exposed to unsafe risk and losses. Kenneth Baker is an attorney at Halling and Cayo, a full service law firm in Milwaukee, WI and part of its Securities Litigation team. His practice is focused on securities litigation. Contact him at (-414-755-5021 or via e-mail at KJB@hallingcayo.com to see if he can help further educate you or recover lost funds.
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