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3 Portfolio Risks You May Be Overestimating

In their efforts to avoid certain risk factors, investors may be inadvertently exacerbating others.

Christine Benz 18.08.2014

With stocks near record-high levels, savvy investors are paying at least as much attention to reducing risk in their portfolios as they are to wringing out more return. And risks seem to lurk everywhere you look--to the potential for rising bond yields to not-cheap equity valuations to political unrest throughout the globe.

Yet, even as it's worthwhile to anticipate and mitigate the effects of those risk factors, there are some risks that investors could be blowing out of proportion, or inadvertently taking other types of risk as they look to offset them. Here are a few of the key ones.

Overrated Risk Factor 1: Invading Principal 
Many retired investors aim to live off whatever income their portfolios kick off, while leaving their principal alone. By subsisting only on yield, they'll never risk outliving their money, and they're apt to be able to leave a nice sum of money to their loved ones.

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About Author

Christine Benz  Christine Benz is Morningstar's director of personal finance and author of 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances and the Morningstar Guide to Mutual Funds: 5-Star Strategies for Success. Follow Christine on Twitter: @christine_benz and on Facebook.

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