As the U.S. economy braces for a potential slowdown or recession, it becomes crucial for investors to reassess the risks within their portfolios. By engaging in a candid discussion with your financial advisor, and verifying the information yourself, you can better prepare for any macroeconomic surprises. Here, we delve into several risk measures that can provide a clearer picture of the risk landscape of your investments.
Price-to-Earnings (PE) Ratio
The PE ratio is a fundamental metric that compares the market value of a stock to its earnings per share (EPS). This ratio helps investors gauge the relative risk associated with a stock, shedding light on the amount they are paying for each dollar of earnings. A lower PE ratio could signify a less overvalued stock or portfolio, whereas a higher PE ratio might indicate overvaluation. Understanding the aggregate PE ratio of your portfolio can provide insight into its overall valuation and potential risk.
The current 12-month price-to-earnings (P/E) ratio for the S&P 500 is 24.59.
Isn't it worth a call to your advisor to explore the collective PE ratio of your portfolio?
The expense ratio represents the cost to manage the underlying investments within a mutual fund or ETF, which does not include the fee paid to the advisor. There’s a clear relationship between investment expense and performance: generally, lower investment expenses are associated with better performance. By scrutinizing the expense ratios of the funds within your portfolio, you can better comprehend the costs involved and their impact on your returns.
A lower expense ratio can significantly augment your earning potential over time. Discussing the expense ratios of your funds with your advisor could unveil opportunities to retain more of your returns.
Additionally, as your assets increases in value, ask your advisors for a reduction in their Advisory fee as larger client relationships should receive a lower fee.
What is your annual investment expense ratio? For instance, in the current equity models that PNWA manages, it is .18%.
In a climate of rising interest rates, the duration of your fixed income or bond mutual or ETF investments could be the sign of risk or stability.
This measure indicates the sensitivity of a fixed-income security's price to changes in interest rates. A higher effective duration number signifies greater risk, as it implies that the security’s price is more susceptible to interest rate fluctuations. For instance, a bond with a higher duration number will see its price drop significantly if interest rates rise. Understanding the effective duration of your fixed-income investments can help you assess their risk in the face of changing interest rates. The duration of the bond portion of the PNWA models is currently 0.2426. This represents an increase/decrease in the bonds by .24% if interest rates either decrease/increase by 1%
What is the duration of your bond investments?
The variance in your portfolio's returns is a tale of its risk narrative. With the S&P 500's standard deviation at 17.54%, how does your portfolio compare? A lower standard deviation could be synonymous with lesser volatility and potentially lesser risk. It's a discussion worth having with your advisor to ascertain your portfolio's resilience amidst market tumults.
Standard deviation quantifies the variability or dispersion in a set of data points, offering insight into the level of risk associated. For instance, the S&P 500 has a current standard deviation of 17.54%, this roughly means that the returns of the S&P 500 could be + or – 17.54% a year.
A lower standard deviation could be synonymous with lesser volatility and potentially lesser risk. It's a discussion worth having with your advisor to ascertain your portfolio's resilience amidst market tumults.
What is your portfolios standard deviation? PNWA models standard deviation ranges from 6.90% to 11.01% for comparison. This metric can help you understand the volatility and risk associated with your investments compared to broader market benchmarks.
Investors cannot control the returns on their investments, but they can certainly manage the risks taken. As the economic tide shifts towards a slowdown, it might be prudent to adopt a more conservative stance by understanding and possibly reducing the risk in your portfolios. Engage with your advisor, examine these metrics, and ensure that your investment strategy is aligned with the changing economic landscape and your long-term financial goals.
Understanding investment risks can feel like a heavy lift as economic challenges loom. But, grasping these risks is key to protect your investments from downturns. Remember, you're not alone in this journey. At PNWA, we're ready to illuminate the complex aspects of your investment risks. Curious about your risk factors or seeking deeper insights? Just drop us a line. We're here to collaborate, making sure your investments not only withstand market ups and downs but also match your long-term financial goals. Taking action today is the first move towards a stable financial future. Why wait? Getting in touch with PNWA is a smart step to clear, confident financial navigation. Let's partner up and steer your investments safely together.