normal swings in a portfolio

[jordiepop]

I have a very diversified portfolio right now. Mutual funds and bonds are split equally at 85%, and the bonds and mutuals themselves are very diverse. the rest is some of the more speculative type stuff. real estate type accounts, foreign market type stuff etc.


i was curious what the normal swings would be for an account like that. sometimes i look at it and it drops 5% in a week and i know that sounds small but its about 12k so that seems like a lot of money regardless. any pointers would be great

[jordiepop]

NE informed investors out there ???

[Grizwold]

Hi jordiepop,

Disclaimer: I'm not giving you advice to adjust or maintain your current portfolio. [img]/images/graemlins/grin.gif[/img]

Even a well diversified portfolio does not eliminate all risk. Equities are particularly vulnerable to market risk. Market risk is normally undiversifiable risk, unless using strategies like index arbitrage. Usually only hedge funds offer strategies which are [mostly] immune to market risk. So you can expect your mutual fund holdings to occasionally drop 5% in a week, especially recently (in the last few weeks S&P dropped from around 1550 to 1440).

Bonds also have risks that are difficult to eliminate, such as interest rate risk. Recently the Fed dropped Fed Fund target rate by 50 basis points, then 25 basis points. That drops prices of all bonds. There's not much you can do to passively reduce your interest rate risk exposure. Again there are some bond arbitrage strategies used by hedge funds.

A 5% decrease in value in 1 week is not a lot, but 20% decrease in 4 weeks, or 52 weeks... that requires attention.

Clark