What Should I Ask My Advisor in Times of Turmoil?

After a rough October you may be scratching your head wondering where your portfolio stands. Seeing daunting headlines may lead you to consult with your advisor. Make sure to confirm that your risk profile through these volatile times is aligned with your short, and long term investment goals. Sure, although presently we have experienced one of the strongest bull markets in the history of the United States, it is important to prepare for times when this is not the case. Knowledge is power, so here are a few questions that you may ask your advisor in order to gain more comfort during these volatile times.

A question you may want to ask is, “what is the sharpe ratio of my portfolio?”

The sharpe ratio is a very crucial component of your portfolio’s risk-reward profile. The definition of Sharpe Ratio is: a measure that indicates the average return minus the risk-free return divided by the standard deviation of return on an investment.

Don’t let this confuse you. In simple terms it’s measuring how much risk you’re taking to get a reward. A good sharpe ratio is usually around a 2 and anything close to a 3 is excellent. See if your advisor can tell you what yours is.

Another measure to ask your advisor is, “What is my Beta?”

Beta is a measure of the volatility, or systematic risk, of a security or a portfolio, in comparison to the market as a whole.

This measures how much your portfolio will move in comparison to the broad market. If your portfolio has a beta of 1.3 than it is 30% more volatile than the general market. This is theory and may not always be the case especially when earnings hit or other news regarding company specific information is released.

Give your advisor a call and ask them for these data points. These types of questions may raise their awareness and keep them on their toes to know that you care and you’re watching. Some advisors are great salesmen to get you in the door. Don’t let them forget about you. If anything else, it gives you an opportunity to ensure that your advisor is taking steps to a balanced and healthy portfolio.

Source for definitions: Investopedia.com



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