Reducing Risk and Finding Income
In the continuing aftermath of the financial crisis that began in 2008 with the collapse of some of the country’s oldest financial firms, individual investors have been focused on reducing portfolio volatility and risk. Getting the help of an investment adviser or a certified financial planner is one approach to make this process more manageable. These financial professional can guide one through the process, ultimately leading to a portfolio profile that is more in keeping with one’s goals. The choice to hire a fee-based financial advisor will ensure that the professional that is selected will be working towards your goals.
Why Select a Fee-Based Advisor?
Many investors are confused by the difference between an advisor that charges a fee, and those that receive compensation through the commissions they collect on the trades that a client places with him or her. At first inspection, it seems like the better option is to take the seemingly free advice of a broker and save on the fess that would otherwise be paid. The problem with this approach is that the broker’s advice may not be in the client’s best interest. Despite rules requiring a broker to keep in mind the client’s needs, brokers are paid different rates for trades in different stock upon occasion. Even the most purely motivated broker will be swayed by self-interest. Hiring a fee-based professional is the only way to be assured that your interests are of superlative importance.
Reducing Volatility and Risk
While these two terms are often used interchangeably by some, they capture different concepts and mean different things to many investors. Volatility is the level of fluctuation that is expected in the value of a given asset over a set period of time. Risk, however, refers to the chance that the asset in question will lose some or all of its value while it is held by the investor. In some contexts these terms do, in fact, mean the same thing, but the typical investor needs to have a contextual reference when using each.
Under current market conditions, the risk profile of many asset classes has become skewed. With U.S. treasuries paying around 2%, the return available in fixed income assets is minimal. This has led many financial commentators to refer to the need to add risk to portfolios in order to find return. In other instances, mention is made to the commodity markets as a way to either add or reduce risk in one’s portfolio, depending on your individual beliefs about inflation and the stability of the global economy. With all this information swirling about, what most investors want is to see consistent asset levels in their account and be able to sleep at night, sound in the belief that their money is secure.
In order to achieve this goal, one of the best approaches currently available is to seek out high dividend paying stocks that are still considered safe. The weakness in the market over the past several months has left significant income opportunities, in terms of dividend yield, available in a vast array of stocks. This is just one of the ways that a portfolio can be properly made less volatile and less risky. Consulting an investment professional can help one to achieve this goal, as the methods are changing constantly.