Is It Time for a Second Opinion on Your Portfolio? | Levin Papantonio Rafferty - Personal Injury Law Firm

Is It Time for a Second Opinion on Your Portfolio?

The market has been super volatile lately. With the coronavirus still wreaking havoc, economic ups and downs, and an election on the horizon, that's not likely to change any time soon. If you're retired or nearing retirement, investors' rights advocate Peter Mougey says you might want to look at a) what's happening with your performance, and b) the make-up of your portfolio.

"If you're near retirement age, your portfolio shouldn't be up or down more than 10 percent this year," asserts Mougey, a national securities and investment fraud attorney with Pensacola, Florida's Levin, Papantonio, Thomas, Mitchell, Rafferty & Proctor, P.A. "If it is, you have the wrong mix of investment products and need to seek a second opinion."

Volatility is typically measured through a formula called standard deviation. This is how investors and financial advisors measure volatility and help weigh the risk vs. return of an investment or investment strategy. In a nutshell, the higher the standard deviation, the greater the volatility.

Those at or near retirement can't handle a lot of volatility. That's because when your portfolio falls too low, your regular withdrawals can quickly outpace the rate of return. You end up in what Mougey calls "the death spiral," where your portfolio gets so impaired it can never recover.

Here's the bottom line: If your portfolio has moved more than 10 percent in either direction this year, don't wait a moment longer, says Mougey. Either ask your current advisor to revisit your portfolio, or go to another one for a second opinion. 

Typically, the second opinion will analyze your asset allocation, the weight given to stocks, bonds, and cash given your age and retirement plans, the historical standard deviation of your portfolio, how well diversified your securities are in different industry sectors, geographic diversification, whether you are diversified amongst small, mid-sized, and large companies, and the overall riskiness of your investment strategy. Financial advisors are required to only offer securities that are suitable for your age and employment status, asserts Mougey.

 But back to volatility: In case you're not well-versed in investment products, here's a quick primer on some different types and how volatile they are:

Stocks have higher standard deviation/volatility than investment grade bonds. Just a quick definition of each:

STOCKS: When you purchase a common stock you are purchasing a share of ownership in a particular company, for instance, Facebook or McDonald's. Owner shares are considered assets and share in the profits/losses of the company. Stock values go up and down based on daily market trading. Additionally, some stocks pay dividends, a payout to the investor of either cash or additional shares of the company stock, on a regular basis. In the event of a bankruptcy, stock holders are paid after bond investors.

BONDS: These are loans to a company that pay interest rates. When you buy a bond it's similar to loaning money to the entity that's issuing the bond for a pre-determined amount of time, for an expected return, called interest or yield. Corporations, municipalities, federal government, and states are common bond issuers. Bond issuers use the investment capital they raise to finance projects like roads, bridges, buildings, or other infrastructure. Bond holders are considered debtholders of the issuer. When a bond matures, or when the time is up, in theory the investor can relinquish the bond for the return of their principal initially invested. (See next bullet.)

Junk bonds (AKA high yield) have higher standard deviation/volatility than investment grade bonds and typically move up and down in close tandem with stocks. As a result, they often don't provide the protection from stock volatility that investment grade bonds do.

All bonds are rated by rating agencies. They give a rating such as AAA, BBB down to BBB- which is the lowest investment grade rating of a particular bond or issuer. Bonds that are rated BB+ down to D are considered non-investment grade and often referred to as "high yield" or "junk" bonds. They tend to be more speculative. Don't rely too heavily on ratings, however, as they often move up or down only after large pricing adjustments, not before.

"Non-investment grade bonds tend to pay a higher yield or interest to the investor for taking on more risk," explains Mougey. "These bonds are more volatile and subject to more interest rate and default risk and valuation fluctuation than an investment grade bond."

International stocks have higher standard deviation/volatility than US stocks. "When investing in international stocks or foreign emerging markets, risks tend to be higher, although opinions vary on what percentage of exposure should be in the foreign market," says Mougey. "Generally, international stocks add other elements of risk such as taxes, currency exchange rates, politics, and trade policies."

Small US stocks have higher standard deviation/volatility than US stocks. A small company stock—or as the industry defines them, small-cap companies—have a smaller market capitalization than large or mid-cap companies. (Market capitalization is simply the market value of the company's outstanding shares.) For instance, large-cap companies have market capitalization of $10 billion and greater, while small-cap stocks are typically defined as less than $2 billion down to $300 million.

"Small-cap stocks can offer investors more room for faster growth than large or mid-cap stocks but they tend to be younger or unproven companies," says Mougey. "Therefore, these companies have a higher standard deviation or are more volatile than most large or mid-cap stocks. During an economic downturn, small-cap stocks are also more vulnerable to economic challenges since they may not have the resources to endure over the long term."

Finding the right mix of these investments smooths out volatility and reduces standard deviation without sacrificing returns, says Mougey. And ethical advisors won't put investors in a position where they're subject to extreme ups and downs.

"If you are retired, or close to it, market volatility should not wake you up at night worrying about large fluctuations to your life savings," he says. "Never hesitate to seek a second opinion.

"Don't leave the advisor's office until you understand how the products you're buying work," he adds. "When you're investing, it's just smart to have a good working knowledge of the basics. Most people need guidance, but it's no substitute for making informed choices."

# # #

Peter Mougey is a partner in the Pensacola-based law firm Levin Papantonio and the chair of the firm's securities department. He concentrates his practice in the areas of complex litigation, financial services, securities litigation, and whistleblower or qui tam litigation.

Mr. Mougey advocates for the rights of investors as both the past president and member of the board of directors of the national securities bar, PIABA, which was established in 1990 to promote and protect the interests of the public sector in securities and commodities arbitration. Mougey has spent much of his career leveling the playing field for investors. He has proposed reforms to combat Wall Street fraud, through a new fiduciary standard in accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act. He has also spearheaded communications with state and federal regulators to ensure that investors' voices are heard.

Mr. Mougey has represented over 1,500 state, municipal, and institutional entities, as well as tribal sovereign nations, in litigation and arbitration around the globe. In addition, he has represented more than 3,000 individual fraud victims in state and federal court and arbitrations. Mr. Mougey has been recognized as a transformational leader in and out of the courtroom and is often called upon to simplify the country's most complex cases.


He has also served as chairman of the NASAA Committee, Executive Committee and FINRA's Improving Arbitration Task Force. Currently, Mr. Mougey serves on the PIABA Foundation charged with educating investors in conjunction with the SEC. In recognition of his long-term and sustained dedication to promote the interests of investors, he received the PIABA Lifetime Distinguished Service Award from his peers. 

Levin, Papantonio, Thomas, Mitchell, Rafferty & Proctor, P.A., has been in existence for more than 65 years. It is one of the most successful plaintiff law firms in America. Its attorneys handle claims throughout the country involving prescription drugs, medical devices, defective products, securities, and consumer protection. 

Based on law firm verdicts and settlements exceeding $4 billion, its securities fraud lawyers are committed to seeking justice for the victims of investment fraud and misconduct. Led by attorney Peter Mougey, the past president of the national securities bar PIABA, the securities and business tort department has represented more than 1,500 investment fraud victims across the country in state and federal court and securities industry arbitration.

To learn more, please visit