After several years of high stock market returns, many investors may be reassessing their portfolio positions. With elevated market volatility in recent months, combined with uncertainty surrounding interest rates and the future of Fed rate cuts, this may be a good time to evaluate whether your asset allocation is still appropriate. Here are some long-standing principles that we use in our decision-making process to determine how much risk is right for a portfolio.

The Importance of Your Risk Posture

When it comes to your portfolio allocation, one decision is more important than, and should set the basis for, all other decisions in your portfolio management process: the selection of a targeted “risk posture.” In other words, this is the balance between aggressiveness and defensiveness in your portfolio positions.

With an aggressive approach, you take on large amounts of risk (in the form of stocks) in exchange for growth potential over the long term. On the other hand, with a defensive approach, you take on less risk, usually in the form of bonds, in exchange for predictable income. In our view, your goal should be optimization, not maximization, and positioning yourself for the right balance. Preservation and growth assets should be combined to get your portfolio to the point on the risk/return continuum that’s right for your situation.

Determining what’s right for you will depend on a number of factors, including your wants, needs, goals, time horizon, financial situation and more. For example, if your goals are more near-term, a high level of risk wouldn’t be as appropriate. However, if you’re saving for several decades from now, you can afford to take on more risk today in return for the possibility of higher growth in the future. Your advisor can help walk you through these different considerations.

Choosing What’s Right for You

Once you and your advisor define your “normal” risk posture, you then have to decide whether you want to take a static or tactical approach to the markets. With a static approach, you maintain your allocation regardless of short-term market movement, while a tactical approach means you make changes based on market conditions.

Your approach here will depend upon your personal preferences and comfort level. Can you stomach the ups and downs associated with normal market volatility, or do short-term losses give you heartburn? There’s no right answer for this, and in fact, your answer may change at different points in your life.

If you choose to be tactical and to make changes as the market evolves, we advise increasing your emphasis on offense when markets are beaten down to take advantage of opportunities. When markets are riding high, we advise increasing your emphasis on defense to reduce risk. Your advisor will help you decide on, and then implement, your preferred approach.

Revisit Your Risk Posture Regularly

Let’s go back to the risk/return continuum I referenced earlier. On the left side of this continuum, you have a portfolio with less risk that offers a narrowed range of outcomes, and on the right side you have more risk and a wider range of outcomes. As I mentioned, there’s no right or wrong place to be here, and where you land will depend on your comfort level and personal situation – and both factors may, and often do, change over time.

For that reason, we advise reviewing your risk posture on a regular basis, after you experience major life changes, or during times of market uncertainty – such as with today’s market. If your life or goals have changed lately, be sure to communicate that to your advisor so they can make updates as needed. If you haven’t reviewed your portfolio lately, or aren’t sure if your portfolio allocation is still appropriate, give us a call today.

This article was published in the Q2 2025 issue of the Bell Wealth newsletter.