Chad isn’t in finance, but all of his friends are. Every time they get together, the conversation turns to the stock market. What stock is everyone talking about? Who made money this week, and who lost big?
It’s been almost five years since graduating college, and over time, he’s spent more of his time dabbling in the stock market. He has his employer's 401K which he contributes to regularly. Separately, he also invests in a personal account based on what he reads about, hears about from his friends, and what he’s researched on his own. It feels good when he finds a good investment opportunity before his friends do.
All this research and following the market has paid off for the most part, especially at the beginning of 2020. He took advantage of the big dip in March 2020 and bought a bunch of hospitality and retail stocks, which had been hammered, with hopes they would bounce back when the world returned to normal. Riding the wave has been great, and the extra effort of picking his own stocks has been well worth it. Up to this point…
With the constant talks of a recession, increased inflation, and almost all of his COVID darlings taking a hit, he can’t keep up with all of the market news. Chad hates logging into his account and seeing the red as he scrolls through his holdings.
Over the summer, Chad started to look into ways to move beyond the anxiety of trading individual stocks and put down some guardrails around what he was investing in. While Chad was looking to maximize his returns, he knew he needed to align that with the risk he was willing to take. Unlike his 401k, which automatically invested based on his risk preference, he hadn’t applied it to his personal investing strategy. Should he have?
Chad was still looking to maximize his returns, but he realized he needed to have a more structured approach that took into account the risk associated. He decided on an Aggressive risk level, with a target risk of 16%, and calculated that he could stomach a loss of -40% in a severe downturn.
He was met with the challenge of wrangling his current portfolio and attempting to understand how it aligned with his chosen risk level. His friends recommended a spreadsheet, but it was overwhelming and seemed like more work than it was worth, as he would need to input all of his holdings, pull in historical data, and watch a few tutorials to understand the correct portfolio calculations.
He came across a Reddit thread where users had recommended tools to help manage their portfolios. It was there he discovered Global Predictions. Chad loved that after answering a set of comprehensive questions regarding his investment strategy (including risk preference) and connecting his investment accounts, he could see a breakdown of his portfolio all in one place. What surprised him the most was the Portfolio Score. Though his score was low, it gave him something to work towards improving, which translated into a better portfolio and better-expected returns. As he dug further into why his score was low, he discovered that there were a significant number of correlated securities in the stocks he picked and his 401k. He had a ton of exposure to stocks that traded in a very similar way, so when one went up, everything went up, and when one went down, everything went down. It was clear from his Portfolio Score breakdown that there was a better way to set up his portfolio to take advantage of risk-adjusted returns by adding securities to his portfolio that had high returns but uncorrelated risks.
Realizing he needed to make significant improvements to get himself on the right track of managing his portfolio, he used the Portfolio Optimizer to quickly re-weight his portfolio. Once completed, he was able to fine-tune his portfolio in Draft mode using individual recommendations. Being able to see how each change would affect his entire portfolio without making the trades gave him more confidence in his decision-making.
Fixated on improving his Portfolio Score, he saw a +67 increase in his score along with an improvement to his risk-adjusted returns from +3.7% to +6.4%.
Checking in with Chad after using Global Predictions for three months, he was feeling more confident in his portfolio and seeing increased returns by focusing holistically across his entire portfolio. Not to mention reducing the amount of time managing it!
“I was so focused on keeping up with my friends that I was spending too much time stock picking while also taking on all this risk. Global Predictions helped me get on track by recommending some interesting opportunities and demonstrating how looking at the risk-adjusted returns across my entire portfolio is so much more important than focusing on the one or two stocks that I might or might not win big on.”
