Individual investors looking to rebuild but cautious about overpromising brokers (and fearing even-Madoff style scams might still be lurking) might be hoping that regulation will make the world safe for investors once again. But, as The Wall Street Journal notes, regulatory reform is unlikely to happen any time soon — and, unlikely to provide a completely impervious safety net.
Instead, investors need to arm themselves. “Perform your own stress test” on a fund you’re considering — or your own portfolio. “Understand your adviser’s motivations” — are you working with a broker who is compensated based on sales, or a fee-based adviser who could be more neutral? And, watch for certain buzzwords — or outlandish-sounding promises — like “cash-equivalent,” “cash-like,” “enhanced,” or “virtually risk-free.” Good advice for all economic cycles.
Missing from the article: take the time to evaluate your true degree of diversification. Many securities move together in response to market events — and, sometimes, as we’ve seen, the entire stock market moves up or down dramatically. Consider whether or how you should diversify your holdings beyond publicly traded stocks and bonds, to better buffer your portfolio value against market cycles.
To read the full WSJ article, click here: http://online.wsj.com/article/SB10001424052970203334304574159580260805044.html