By Angela Barnes
The Globe And Mail
Wednesday, May 14, 2003

Investors need to understand the types of risks to which their investment portfolios are exposed, and should determine the amount of risk they can tolerate, said Adrian Mastracci, president of Vancouver-based investment advisory firm KCM Wealth Management Inc., in a recent newsletter.

"The ability to take the risks is associated with the investment time horizon," he said. A younger person has more time to recover from setbacks in a portfolio than a person heading into retirement. Also, a conservative investor is far less inclined to tolerate capital fluctuations than an aggressive investor. And "the need to take risks is associated with the investment rate of return required to achieve those personal goals," he said. "The risks of seeking a 6 per cent return are different than seeking 10 per cent."

He noted that what hurts portfolios most is not incurring losses, but rather keeping them far too long. And the solution there can be simple, he suggested. It could, for example, entail adopting a strategy that calls for selling a stock if its price drops 25 per cent below the purchase price.

Diversification is another way to reduce investment risk. "Portfolios ought to contain a variety of asset classes that do not all move in the same direction," he added.

Periodic rebalancing of a portfolio, to bring it back in line with appropriate asset-mix targets, also helps. "Consider lightening up on the outperformers the next time the portfolio is rebalanced," he said.

NOTE: The information provided above is intended for general informational purposes only. It does not constitute advice for anyone's specific situation. Everyone should always first consult directly with their advisors to determine the appropriateness of any information contained above before taking any action. KCM Wealth Management Inc. assumes no responsibility for any loss or damage arising from the use of, or reliance upon the above information.