Tags: Clements | measure | risk | portfolio

WSJ's Clements: How to Measure Risk in Your Portfolio

By    |   Monday, 02 February 2015 03:38 PM

Given the increased volatility in financial markets as of late — the CBOE Volatility Index (VIX) has soared 45 percent since the S&P 500 hit its record high Dec. 29 — you may be worried about the riskiness of your investments.

Wall Street Journal Jonathan Clements offers several ways of measuring that risk.
  • "Allocating Assets," he writes. Calculate what percentage of your portfolio consists of stocks, bonds, cash investments, and alternative investments such as gold and real estate. In general, "the more you have in stocks, the riskier your portfolio will be," Clements notes. "But alternative investments and bonds can also boost your portfolio’s risk level."
  • "Riding the Cycle." Try to determine how your portfolio will perform in different economic environments. "Aim for an investment mix that will fare reasonably well, no matter what happens," Clements writes.
  • Small-cap and value stocks historically outperform in the long term, but can mean added risk. "Smaller-company shares usually suffer more than large stocks in a market downturn," he explains. "Meanwhile, value stocks often have shakier finances than growth stocks, so they could generate wretched performance in a bad economic slump."
On the subject of value stocks, Mario Gabelli, CEO of Gamco Investors, who has made a huge amount of money for his clients over the years through shrewd value investing, recently offered several value plays to Barron's.

Two of his favorite stocks are Graham Holdings and Post Holdings.

Graham Holdings was formerly Washington Post Co. Now it includes TV stations, higher education publisher Kaplan, and Cable One, a cable TV and Internet service provider. "The cable asset is going to be monetized," Gabelli says.

The cereal company Post has an 11 percent share of the cereal market, he notes. "There has been some talk of consolidation in this market. I have called [Post CEO] Bill Stiritz a 'cereal acquirer,'" Gabelli states. Post has bought 12 companies for $4.4 billion over the past two years, he said. "The company could have some near-term challenges, but it has good longer-term prospects."

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Given the increased volatility in financial markets as of late — the CBOE Volatility Index (VIX) has soared 45 percent since the S&P 500 hit its record high Dec. 29 — you may be worried about the riskiness of your investments.
Clements, measure, risk, portfolio
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2015-38-02
Monday, 02 February 2015 03:38 PM
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