To quote the legend Bob Marley, there seems to be “so much trouble in the world”. Between newscasts, podcasts, talking heads and social media there is no doubt there has been a lot of noise in the market both globally and locally. When investors get caught up in the noise many may panic sell or divert from their financial goals and plans. Understanding your risk profile, asking the right questions, investing in line with the risk and return that suits you, and ignoring noise will help you achieve long-term investment success.

When the landscape is calm, and all is well, it is easy for investors to remain comfortable. In times of volatility investors must take a hard look within to truly assess their risk tolerance. Here are a few things to consider when assessing your portfolio in tandem with your risk profile.

Ask yourself: Am I having a knee-jerk reaction? Am I buying into the noise? Many times, we feed off articles in the news or are influenced by the opinions of friends. However, the things we should consider as an investor are the fundamentals of the issuer. Have they weathered volatile waters before? Have they been able to navigate previous downturns?

A second risk factor an investor should consider is: How comfortable am I with loss? When considering loss, think of it not only on an emotional and psychological level but factor in time. If liquidating a portion of your portfolio to rebalance risk, how much time do you have to recover? Additionally, by rebalancing you are cutting into the long-term potential returns on your portfolio. The timeliness of the information you gather and when you use it should factor into the decisions you make.

Diversification is another key factor in managing your risk profile. By spreading your investments across different asset classes, geographical and operational sectors you reduce the impact of a single event affecting your portfolio. Likewise, if you are particularly inclined to a single sector or industry and want to capitalise on returns there, you must be prepared to handle the risk-reward ratio of that concentration.

By practising effective risk management, using reliable information, and seeking the advice of your licensed financial advisor, an investor can weather the storm. Ignore market noise and focus on building the best portfolio for your financial goal.

Christine Rankine is the Manager – Personal Financial Planning at Sterling Asset Management. Sterling provides financial advice and instruments in U.S. dollars and other hard currencies to the corporate, individual and institutional investor. Visit our website at www.sterling.com.jm

Feedback: if you wish to have Sterling address your investment questions in upcoming articles, e-mail us at info@sterlingasset.net.jm.