- September 1, 2021: Vol. 8, Number 8

Roundtable: What is the biggest risk lurking in investors’ portfolios?

by contributing executives

Daniel Ades, managing partner and CIO, Kawa Capital Management

The growing numbers of investors buying the ever-growing list of assets that they simply don’t fully understand. Understanding one’s investments is critical to long-term returns. Generally, it also means avoiding the manias and the “easy money” investments. It means hard work, and it often means doing nothing when there is nothing to do. Most importantly, it means being “OK” with others next to you making money in areas (generally with purportedly no risk) that you know nothing about.


Jeff Grant, managing director, private wealth partners, CIM Group

The biggest risk is focusing solely on a traditional asset allocation, including stocks, bonds and cash. With equities at an all-time high and fixed-income yields at all-time lows, portfolios with a traditional asset allocation may be in a riskier position than one might think. Alternative investments like real estate and corporate debt funds, when part of a well-diversified portfolio, may help mitigate exposure to market volatility, contribute to income and complement more traditional investments.


Fred Baerenz, president and CEO, AOG Wealth Management

Currently my biggest portfolio concern is holding long-term bonds. I believe the Federal Reserve is going to capitulate to “transitory” inflation and that rate hikes will come sooner and more frequently than previously signaled. In Blackstone’s second quarter analysis from Joe Zidle and Byron Wien, the firm separates 5 percent inflation into “core” and the economic “reopening basket.” Zidle and Wien point out that core inflation is at 2 percent pushing toward 3 percent. In particular, they reference increases in rents and wages, which will be difficult, if not impossible, to reverse. These increases indicate core rather than transitory inflation, which spells trouble for long-term bond holdings.


David Johan, president and chief compliance officer, Doceo Wealth

The misunderstood and inadvertent correlation between all positions within investors’ portfolios is the biggest risk to clients. This occurs because most investors and, in some cases advisers, do not always understand the assets they’re recommending and the contents of their clients’ portfolios. It’s paramount to understand what true diversification means, not only for future portfolio stability but also for longevity and taxation down the road.


Wayne McCullough, president and managing partner, Benchmark Private Wealth Management

The biggest risk in a client’s portfolio is often not knowing their risk. An over allocation to growth equities seems to be a risk we see a lot. Clients don’t really understand between their various ETFs, mutual funds and index funds they are overallocated to large-cap growth as well as concentrated growth names such as Netflix, Apple, Google, Tesla, etc. Bond funds are also a place of concern, as they will fluctuate with interest rate moves. Inflation can and will erode the real return on these bond funds. Lastly, a unique risk is not having enough alternative investments in your portfolio. In market environments such as today, an investor needs alts to offset gyrations in the portfolio. This could include hedge funds, private equity, private credit, private equity real estate, as well as liquid markets such as frontier markets. Risk mitigation is ultimately what compounds the portfolios growth over time.


Robert Brunswick, chairman and co-founder, Buchanan Street Partners

With yield-starved investors broadening their risk tolerance in search of returns, we see a lack of diversification as a significant risk to client portfolios. The gamification of the stock market, recent fiscal stimulus and prolonged accommodative monetary policy have created an environment that is difficult to navigate for those seeking to preserve capital and earn current income. As volatility ebbs and flows, we believe there exists a need for patient, long-term strategies that safeguard principal while targeting a meaningful risk-adjusted return.


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