Analyzing your investment portfolio for concentration risk is crucial to avoid underperformance or excessive volatility. It’s wise to review your investments at least semi-annually, as the proportion of your assets can shift significantly over time. If not a full rebalance, at least a quarterly check can help ensure your investments align with your risk tolerance.
Even if you rely on a financial advisor, take the time to verify your allocations yourself. For instance, someone discovered they thought they were heavily invested in the S&P 500, only to find they had been sitting in cash and bonds all year!
Easy Steps to Check for Concentration Risk:
A simple way to assess your portfolio for concentration risk is using financial tools like Empower, which offers an Investment Checkup feature. This tool helps you:
– Evaluate stock concentration to ensure no single investment dominates your portfolio.
– Assess domestic equity sector exposure, comparing your allocations with benchmarks like the S&P 500 and smarter, tactical weighting strategies that balance sector investments equally.
– Review US equity styles to check your balance across large, mid, and small-cap stocks compared to standard and smart indexing benchmarks.
Screenshots to Guide You:
When you log into your dashboard, you’ll find tools that allow you to analyze:
– Stock Concentration: Shows how diversified your holdings are and whether any single stock is overweight.
– Domestic Equity Exposure: Indicates if you’re overly invested in any sector, particularly technology, which might skew risk.
– US Equity Style: Compares your investment style against broader market indices and tactical recommendations, highlighting any imbalances in your portfolio’s market cap exposure.
Sector Weightings Discussion:
It’s crucial to compare your portfolio not only against the S&P 500 but also against equal-weight sector strategies. For example, technology stocks made up 28% of the S&P 500 in 1999 before crashing dramatically. Similarly, financials represented a large portion before tumbling in the financial crisis. These examples highlight why it’s essential not to let any single sector dominate your investments.
Accessing Investment Checkup Features:
– Sign up or log into Empower.
– Navigate to the Investing tab and select Investment Checkup from the dropdown menu.
– Use this tool to analyze various aspects of your portfolio, helping you make informed decisions about where to allocate your money to avoid undue risk.
Remember, regularly checking and adjusting your investment portfolio can protect your retirement plans from unexpected market shifts and ensure a more stable financial future. Don’t let high fees or overlooked concentration risks derail your investment goals.
