Last week we discussed some key concepts in personal portfolio management.
The three most important metrics to track for your personal portfolio are:
- What was the peak value of your liquid portfolio?
- What percentage have you dropped from your peak?
- What is your equity exposure (total equity value divided by total portfolio value, including cash and bonds that are held to maturity)?
If you are dropping too far from your peak past a certain threshold for normal market volatility, say -5%, perhaps it's time to incrementally reduce your equity exposure to reduce your risk and protect your assets from an extended bear market. You can reduce your equity exposure by selling your funds with a "Reduce" or "Liquidate" Kinetic Financial recommendation. The rate at which you reduce your equity exposure relates to your personal risk tolerance.
Similarly, if your total liquid portfolio is increasing from its bottom (past a certain threshold- say +5%), perhaps it is time to increase your equity exposure by buying funds in the best areas of the market from a Risk and Reward perspective. You can increase your equity exposure by buying funds with an "Accumulate" or "New Buy" Kinetic Financial recommendation.
This strategy will help you make money in the best areas of the market during *sustained* market upturns and protect your assets during an *extended* bear market.
As we discussed previously, the Kinetic Financial Model Portfolios are tuned to assume "market" risk as defined by the S&P 500. If you are willing to accept this level of risk for your portfolio, you can follow the model portfolios exactly.
Regardless, we believe it is very useful for everyone to track their portfolio using the three simple metrics described above.Labels: portfolio management
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posted by Ramesh Agarwal & Team @
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