3 Portfolio Risks You May Be Overestimating

In their efforts to avoid certain risk factors, investors may be inadvertently exacerbating others

Christine Benz 4 August, 2014 | 3:55PM
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With stocks near record-high levels, savvy investors are paying at least as much attention to reducing risk in their portfolios as they are to wringing out more return. And risks seem to lurk everywhere you look--to the potential for rising bond yields to not-cheap equity valuations to political unrest throughout the globe.

Yet, even as it's worthwhile to anticipate and mitigate the effects of those risk factors, there are some risks that investors could be blowing out of proportion, or inadvertently taking other types of risk as they look to offset them. Here are a few of the key ones.

Overrated Risk Factor 1: Invading Principal 

Many retired investors aim to live off whatever income their portfolios kick off, while leaving their principal alone. By subsisting only on yield, they'll never risk outliving their money, and they're apt to be able to leave a nice sum of money to their loved ones.

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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Christine Benz

Christine Benz  is director of personal finance at Morningstar and author of 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances.