Risk Management Adjustments in Our Retirement Portfolio

Several months ago I changed the asset allocations in my 401k plan. The prior allocations were based on the Ten Speed portfolio published by Scott Burns. I simplified our holdings into another of Burns couch potato portfolios, a slightly modified version of the Four Square. One of my reasons for doing this was improve my ability to control risk . Shortly thereafter, I entered stop loss orders for our major holdings. This morning, I made some further risk management adjustments. 

Since we purchased the new exchange traded funds (EFTs) in our portfolio in July, they have increased in value: BWX (+ 14.4%),  VEU (+ 14.4%), VTI (+ 9.12%), and BSV (+1.51%).  Our other major 401k holding is VIPSX. It is up 6.07% but because it is a mutual fund, I cannot set a stop loss order on that position.

Based on these gains over a three-month period, it was time to adjust the stop loss price upward, except for the BSV position. I decided to set the new stop loss sell points at prices representing what I would consider an intolerable short-term loss from our current positions, taking into account the volatility of each particular ETF. The market would have to drop approximately 7%-8% to hit my new stop loss points. That could happen on some very bad news or based on another episode of programmed selling gone awry. If the ETFs sold at the stop loss price points, I still would have locked in gains from our purchase price. I could reenter the market when whatever conditions created the sudden volatility disappeared.

Some might call what I am doing as an attempt to time the market. I don’t look at it that way because I am not getting in and out based on gut reactions or technical analysis. I am simply trying to manage our risk and prevent another double digit loss in the value of our portfolio. I am too close to retirement not to do that.

What are you doing to manage risk in your retirement portfolio?


  1. says

    We had a long discussion about selling original money and holding only gains. We
    “re- bought in” mostly near the market low two years ago- so we are hitting some pretty major gains at this point. Never used stop loss. I think we will look into it.
    We did not do ETFs but can understand why people do.
    Balanced portfolios? What are they? I don’t think much of the past can help us make money today. Buy solid companies that you know and move forward with them. It is a mix of dancing and gambling.

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