First let’s look at risk. What is risk? Something that you are not willing to lose or that you want to protect yourself against. For this, think of eating something from your refrigerator that’s close to expiring, expired or way past expiration date—say eggs. What are you willing to risk by eating a bad egg? Again, tying this back to your portfolio, risk is what you are comfortable with in regard to loss. You want to consider what would keep you up at night and how much loss in your portfolio would cause you stress. This is also called risk tolerance.

Here we see your current personal account and IRA account. The blue indicates your concentration in technology and the green color represents the other asset allocation your portfolio is invested.

The reason for grouping investments as different asset classes helps diversify your portfolio.  When you diversify, you ultimately utilize more baskets between all of your investments. This helps manage the risk (possibility of loss) based on how each asset class reacts to the changes to the market. 

*Click* Currently, this is what your portfolio looks like as example of this basket of eggs. You have a variety of investments in the technology asset class (kind of like the different varieties of eggs in the basket), however these investments will react the same way when the market changes. If the market drops and the technology drops with the market, your portfolio is exposed to that risk because of the large amount invested in technology. Again, this is neither good nor bad. If technology does well, you will do well; however, by having a significant amount of your investments in technology, if it does poorly, this could potentially expose you to more risk of loss than you thought you were taking.

Here I’ve combined all of your accounts into a single picture to help you visualize what asset classes make up your portfolio. Here we see that you have a majority of your investments in technology and the remainder is in other; i.e., bonds and other kinds of stock. Why is this important? Because based on your desire for a conservative portfolio, there may be risks you were unaware of. Even though you have numerous technology funds, as they are part of the same asset class and will react to the market changes in the same way. As I noted, although there’s nothing wrong with being heavily invested in a single asset class, we need to make sure you know the risk you’re taking.

Another consideration we need to address is tax efficiency. What is tax efficiency? This means you want to minimize your tax liability given the options you have available. Currently, you are invested in a couple of different municipal bond funds, which have great tax advantages! You also have your portfolio divided into a taxable account (meaning any growth from investments—gains—you receive are taxed) and you have your IRA, which is a tax-deferred account. This means you don’t pay taxes on the income and growth right now, but instead at a later time. 

You want to make sure that these investments are placed in the correct account, either taxable or tax deferred, to provide you the best tax efficient option. So if you have fresh eggs that can be consumed now, where would you keep those eggs? In the freezer side or the refrigerated side? Most likely the refrigerator side since you want access to eat them at any time. This would be the most efficient way to manage the eggs for your maximum benefit.