Portfolio Checkup: When, Why and How?

The following post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga.

It’s easy when the market is high and you’re growing your money daily to, quite frankly, coast. Like a lovely warm Summer drive in a convertible, the wind in your hair, you can’t hear a thing but you feel pretty free. These are good times. Then, there are some rumblings. You really don’t pay much attention because there are always rumblings, but you’re a bit more alert. Finally, there’s a little dip. You dart up, it’s time to put the top up and pay attention!

Honestly, when your portfolio is down it’s not the best time for a portfolio checkup, while it’s also not the worst. You’ll be much calmer if you do a checkup when all is going well, while you’re less likely to take action. When you’re in the dip is just as good a time to take stock. If you are an active investor, market dips can be an opportunity to buy some of your favorite stocks at a lower price, or move those nice gains into more diversified assets.

Why mention this? It’s clear the market finally took a little dip recently. So far little and where it leads depends on whose version of the future you subscribe to. We’ll just focus on the little dip and options to diversify and protect your portfolio if you decide to do a checkup.

How do you perform a portfolio checkup? Keeping it remarkably simple, you decide if you should move portions of your portfolio where you might be over-invested to other investment options that may better balance your portfolio. You have to take a look at when and how these new investments might also “dip”, and generally balance out your total downturn to gain possibilities into how much you personally can handle, that’s ensuring your portfolio matches your risk profile.

For instance, I know I watch my non-retirement investments pretty closely and I don’t like losing much more than 15% in any given investment in a short (months) period. Losses of 20-30% make me very uncomfortable, so if I invest in market indices or investments correlated to the market I will at some point need to weather losses of this size. Wait it out with my anxiety in tow. When I did my latest portfolio checkup, then, I looked at annualized volatility, worst drawdowns and recovery periods to ensure I was reducing my risk to something more palatable for me. At the same time, I might be willing to weather my discomfort to keep my market-level gains. The market has been strong for a while, those gains are good! So if I could find equal gains with less volatility, for me that’s worth shifting some assets.

Most portfolio check-ups include something like I did. What has been working in your portfolio and what’s been concerning? Is too much of your money in one type of investment? Usually the question is if you can diversify more while keeping your gains.

The other way to do a portfolio check-up is to look at the “other” investments out there and compare them to what you have. That can make the moves you’d like to make clear too, a sort of backing out changes that will help you grow your money faster. Today, many investors look at alternative investment options when they do this because more and more alternative investments come into the marketplace pretty much every month. You’ll see alternative investment options in:

• Hedge Funds (CARL of course)
• Real Estate
• Farmland
• Art
• Private Equity
• Wine (yes, it’s out there)
• Automobiles (yes, this one out there too!) 

When reviewing alternative investments you’ll hear “asset class” quite a bit, and the list above is a very high level of asset classes. Real estate, for example, will break out into even more distinct classes. Art may be discussed as “Private Debt”. Many will be fixed, so you’ll have lock-periods with a more probable outcome, while CARL has no lock-periods and while not fixed also has no upper gain limit. As with any investment you want to consider the:
 

• Risk profile (drawdowns, loss history, volatility, etc.)
• Gain opportunity, fixed or open
• The time period of the investment and your goals for the investment
• If hard goods are involved, you may need to look at how the item is insured should an unfortunate event occur
• Correlation to your other investments (how much of your money will go down at the same time?)
• Performance compared to standard indices (is the investment somehow better than simply investing in the SPX?)
• Minimum investment requirements (how much of your portfolio did you want to move?)
• Liquidity (lock-ups or generally open?)
• Is the investment diversified in itself, or are there increased diversification options (do you have to invest the whole minimum in one strategy?)

These are just some of the items you can consider when reviewing adding alternative investments to your portfolio. How you review can really depend on the makeup of your current holdings. Whether you consider this first or last, you’ll eventually have to decide from what portion of your current holdings you will move to alternative investments. Stocks? Bonds? Savings that aren’t growing at all? Are you holding anything else? These are the personal decisions you’ll need to assess.

Regardless of how you do your portfolio check-up since quantitative hedge funds haven’t been available to retail investors before, they’re worth reviewing. They provide portfolio solutions pro investors have used for years and may provide more options than you’ve seen before for solving portfolio challenges. Liquidity is a big one, CARL strategies don’t have lock periods. They’re also uncorrelated, tend to perform the same or better than standard market indices with more appealing risk profiles (generally less harsh downturns historically), and most importantly each strategy has its own internal diversification and you can diversify to multiple strategies even at our minimum investment.

CARL enables access to quantitative hedge funds. We frequently discuss how these funds work to perform in any market, often have built-in risk controls and some will still fully hedge when the market is going down. Additional considerations for hedge funds, they should have systems working in these intended features.

If your portfolio is down right now, what do you do? Well, you have options. Some will wait for the recovery and then make adjustments based on the above options. That’s reasonable emotionally, moving out of a down market can just feel bad. Remembering to make the moves after your recovery is key, or feel the downturn pain next time! Others will see the growth is there regardless of your starting line, so making the moves while there’s clarity in how you’d like your overall portfolio to be performing, having more gain options in any market, is key for these investors. They take the action as soon as it’s clear they need to.

Whatever type of investor you are, the critical step can simply be doing a checkup. Taking note of new investment options, seeing what’s out there to further diversify and ensure you have options to grow in all market conditions...this is really quite a new concept, while it’s here. You don’t have to settle for “just wait it out” or worse as your advisor pulls you out of the market and lets your cash sit on the sidelines while you wait for recovery. You can demand more, you can take action and do more to grow your wealth. More than ever before with powerful quantitative hedge funds working for you.

The preceding post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga. Although the piece is not and should not be construed as editorial content, the sponsored content team works to ensure that any and all information contained within is true and accurate to the best of their knowledge and research. This content is for informational purposes only and not intended to be investing advice.