It's an anxious time to be a patient investor. The roller-coaster Chinese stock market as well as the ongoing debt crises in Greece and Puerto Rico make it difficult to feel like your retirement portfolio is on strong footing. Now may be a good opportunity to review your asset allocation and tolerance for risk, financial advisors say, especially if you haven't done so recently.
It's time for a "gut check," said Craig Cowles, a certified financial planner and partner with Cardinal Wealth Advisors in Dallas. Answer these questions: Are you properly allocated between stocks, bonds and alternative assets in the first place? Have you rebalanced your portfolio—that counterintuitive process of selling winners and buying losers to maintain your desired asset mix—in the past year? Do you have enough cash on hand?
"Most of all though, don't become irrational and use fear as the guide, as selling low will hurt you," Cowles said. If you're tempted to sell now, he added, you most likely "had too much risk that you were not comfortable with in the first place." So it's worth taking a hard look at your investments.
It's important to put all the recent turmoil in the financial markets in perspective though. "The important thing to remember is that market volatility is always with us," said Kevin Gahagan, a certified financial planner and partner at Mosaic Financial Partners in San Francisco. "Specific to Greece and China, [that means] ignoring the `noise' currently surrounding the news of these events. In practical terms, for most investors, these two countries represent only 1 or 2 percent of their total portfolio—at most."
The 10 largest diversified international funds by assets have less than 9 percent of their portfolios allocated to Chinese stocks and minuscule amounts to Greek equities, according to mutual fund research firm Morningstar. (See table below.) Morningstar and Google Finance offer free tools to help investors analyze the exposure to international markets.