Stress Testing your Investment Portfolio

Posted on April 17, 2022 by Dr. David Edward Marcinko MBA MEd CMP™
Join Our Mailing List

What is Your Risk Number?

DG

[By David Gratke]

Are your current investments aligned with YOUR investment goals and expectations in 2022?

As we all know, the global financial markets have responded tremendously to the past seven years of Global Central Bank monetary polices. i.e. asset prices, stocks, bonds and real estate have all gone up in price as a result. But now, we have the pandemic and Ukraine war to consider.

So, when have you last ‘stress-tested’ your portfolio to see how durable it may through various market cycles? And, how do you determine if your current investment holdings are right for you? Maybe they are too conservative, or just the opposite, still too aggressive?  Maybe they are right where they need to be, but how do you know, how do you measure that?

  • Capture you Risk Tolerance
  • See if your portfolio fits you.
  • OK, How do I Start?

By simply answering a few questions, and spending 10 minutes of your time, based upon the size of your investment portfolio, you will quickly determine your own tolerance for risk.

Comparing your Risk Number to your Portfolio

Now that you have calculated your Risk Number, how does that number compare to your actual portfolio holdings? Is the portfolio you have today, the one you started with some time ago regarding risk and return? Is it still in alignment with your original expectations?

Does your portfolio have?

  • Too much risk?
  • Is it too conservative?
  • Or, is it just right
  • What if the market drops significantly? Instead, what if the market goes up significantly? See how your current portfolio will fair in any one of these market conditions:
  • Let’s put your portfolio onto the treadmill; just like the doctor’s office.
  • How do you know, how do you measure?

Let’s Stress Test your Portfolio

  1. Bull Market (Prices generally rise)
  2. Bear Market (Prices generally fall)
  3. Financial Crisis
  4. Rising Interest Rates

***

ScreenShot2015-06-01at11_34_02AM_113439

***

  • Are the results in alignment with your expectations?
  • Any ‘hot spots’ you need to know about?
  • Are there any individual holdings that will cause you loss of sleep over?
  • Maybe investments don’t generate enough income?
  • Maybe investments fluctuate too much in price?
  • Now you can have a look and see if there are any ‘hot spots’ where you may need to re-balance a portion of your holdings based upon these findings.

***

2

Yes! That feels like me

***

Congratulations. Once you have determined your Risk Number, and perhaps re-aligned your current portfolio to your Risk Number, then yes, you DO have the portfolio that is right for you, one that ‘feels like you’.

ABOUT

David Gratke is chief executive officer of Gratke Wealth LLC in Beaverton, Ore. A Registered Investment Advisory Firm.

***

Conclusion

Your thoughts and comments on this ME-P are appreciated. How does the current market tumult affect this ME-P or your own investing strategy? Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

***

Risk Management, Liability Insurance, and Asset Protection Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™8Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™

“Physicians who don’t understand modern risk management, insurance, business and asset protection principles are sitting ducks waiting to be taken advantage of by unscrupulous insurance agents and financial advisors; and even their own prospective employers or partners. This comprehensive volume from Dr. David Marcinko, and his co-authors, will go a long way toward educating physicians on these critical subjects that were never taught in medical school or residency training.”

Dr. James M. Dahle MD FACEP [Editor of The White Coat Investor, Salt Lake City, Utah]

***

USA “With time at a premium, and so much vital information packed into one well organized resource, this comprehensive textbook should be on the desk of everyone serving in the healthcare ecosystem. The time you spend reading this frank and compelling book will be richly rewarded.”

Dr. J. Wesley Boyd MD PhD MA [Harvard Medical School, Boston, Massachusetts, USA]

Filed under: Investing, Portfolio Management, Research & Development, Retirement and Benefits, Risk Management | Tagged: , , | 1 Comment »

Doctors Living With Higher Stock Market Volatility

Posted on November 28, 2021 by Dr. David Edward Marcinko MBA MEd CMP™

Join Our Mailing List 

Change is afoot in the market, the rally of which lulled many into complacency

DG

By David Gratke

DOW DJI 34,899.34 at close
‎-905.04 (‎-2.53%)

Volatility, on vacation for most of the past few years, is back this fall for physician investors and us all. It hit a new 52-week high in mid-October, double the level of August. That means change is afoot in the market, whose rally lulled many into complacency. So. this is a good time to see where your portfolio stands in risk terms.

The last time volatility really spiked, as measured by the Standard & Poor’s 500 volatility index, or VIX, was the fall of 2011 when the market last corrected by 20%. Then, the VIX level was twice as high as now. Volatility is market price fluctuation, and it signals greater risk.

Financial Risk

financial risk

The root cause of higher volatility is that the world’s major central banks, including our Federal Reserve, have flooded markets with liquidity – printing money, if you will. In other words, in an effort to jump-start local economies, they have kept rates so low that stocks are artificially higher, and thus ripe for a price-churning correction. The insidious side-effect of this money printing has been to greatly reduce, if not extinguish, historical, and normal, market price fluctuations.

As David Kotok, chairman and chief investment officer of Cumberland Advisors, puts it: “An era is ending: for over half a decade, nearly worldwide, zero interest rates suppressed volatilities. That is over.” The initial indication of this, Kotok says, was when then Fed-Chairman Ben Bernanke indicated that his bond-buying stimulus program was coming to an end. Well, now it’s over and the market fears interest rates are on the way up.

Investor Sentiment

Transferrable Emotions

Stock market volatility can be measured and is used to gauge investor thinking, or what we call investor sentiment.

The VIX gauges investor sentiment. When volatility is low, the implication is that investors are complacent. Said differently, they are not paying attention to the underlying risks in the marketplace. Also during times of low volatility, markets are often fully valued, or even overvalued due to investor contentment.

When the VIX is high, as it was during the 2008-09 financial crisis, investors exhibited great amounts of fear. They sell out of their investments, and markets are typically undervalued.

Volatility was low prior to 2008, hovering around its historical average of 20. The index then zoomed to 90 during the 2008-09 stock market slide. In recent months, however, most notably June and July, we witnessed a historic low in this index, hovering near 10. Sure enough, there were high levels of margin balances and bullish investor sentiments, along with above-average stock valuations, as seen by lofty price/earnings ratios.

Now, the VIX is slightly below average, at about 15.

Since August, volatility rose from its sleepy historic mid-summer lows for many reasons: Middle East tensions, the Ebola outbreak, low gross domestic product growth, central bank stimulus slowing down, corporate stock buybacks, high P/E ratios, just to highlight a few.

Stock_Market

A New Normal?

Assuming this higher volatility is the new normal, what can you do about it? One alternative is to do nothing and ride this out. Another is to trade options, betting on which way the market will cut. But this is very risky and best done by professionals. Kotok says a volatility surge is a good time to examine your portfolio’s risk profile: His firm’s largest positions are in defensive stocks, like utilities and telecoms – ones that don’t tend to rocket around when the market gyrates.

During a recent volatility boost to the current level, in 2013, a Wall Street Journal story offered some market pros’ tips. Examples: putting money in a balanced fund, where stocks and bonds are in roughly equal proportion. Another warned that whenever stock holdings were over 70% of a portfolio, or under 30%, you are most vulnerable.

Regardless, Kotok cautions that “more and exciting volatilities lie ahead.”

Follow AdviceIQ on Twitter at @adviceiq.

About the Author

David Gratke is chief executive officer of Gratke Wealth LLC in Beaverton, Ore.

Conclusion

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

Financial Planning MDs 2015

Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™

Filed under: Interviews, Portfolio Management | Tagged: , , , , , | 7 Comments »