What Risks are Hiding in Your Portfolio?
How Professional Guidance Helps Investors Protect and Grow Their Wealth
by Chris Brown, Ph.D., MBA, CFP® and Ron A. Rhoades, JD, CFP®
A Tale of Two Investors
When the market plunged 34% in March 2020, Robert panicked. He’d worked thirty years to build his $800,000 retirement portfolio, and watching it drop to $528,000 in weeks was unbearable. He sold everything and moved to cash, planning to “get back in when things settle down.”
His neighbor Susan had the same portfolio value and felt the same fear. But her advisor called that week—not to sell, but to talk. They reviewed Susan’s plan together, discussed her timeline, and rebalanced to capture opportunities in the downturn. Her advisor reminded Susan that her retirement was fifteen years away, and they had planned for exactly this scenario.
By year-end 2021, Susan’s portfolio had grown to over $1.1 million. Robert, who waited until markets “felt safe” before reinvesting, had $714,000. Same starting point. Same market. A difference of nearly $400,000.
What risks are hiding in your portfolio—and do you have someone to call when markets test your resolve?
The Risks Investors Face
Successful investing isn’t just about picking good funds—it’s about managing the many risks that can derail even well-constructed portfolios. Some of these risks are obvious; others are invisible until they strike.
Behavioral risk may be the most dangerous of all. Morningstar’s Mind the Gap 2024 study found that over the decade ending December 2023, investors earned 6.3% annually while their funds returned 7.3%—a gap caused primarily by poor timing decisions.1 Academic research by Gao, Gao, and Ni (2023) found similar results: mutual fund investors earned only 93.8% of their funds’ returns due to buying high and selling low.2 That gap represents real money—approximately $500 billion in lost wealth industry-wide over a single decade. We explore behavioral risk in depth in our blog post, “Why Do Smart People Make Dumb Investment Mistakes?”
Concentration risk lurks in portfolios that appear diversified but actually hold overlapping positions. Owning five large-cap growth funds doesn’t provide diversification—it provides five versions of the same bet. True diversification means holding assets that don’t move in lockstep; instead, the assets vary across asset classes, geographies, and investment styles. We explore more about diversification in “Why do Financial Experts say, ‘Don’t put all your eggs in one basket?’”
Sequence-of-returns risk threatens retirees who experience market downturns early in retirement. A 20% drop in year one of retirement has far greater impact than the same drop in year fifteen—yet few investors plan for this reality.
Tax risk silently erodes returns in taxable accounts. The SEC found that taxes reduced the median stock fund’s performance by 2.6% annually.3 Without tax-aware strategies—asset location, tax-loss harvesting, and managing capital gains distributions—investors surrender wealth unnecessarily to the IRS.
Inflation and longevity risk combine to create a challenge unique to our era: portfolios must grow enough to maintain purchasing power across retirements that may last thirty years or more.
The Documented Value of Professional Guidance
Managing these risks is complex work—and research consistently shows that professional guidance delivers substantial value. Vanguard’s Advisor’s Alpha study, updated for 2024, finds that advisors can add approximately 3% in net returns annually through a combination of services:4
Behavioral coaching alone can add up to 2% annually by helping investors stay disciplined during market volatility—avoiding the panic selling and performance chasing that destroyed Robert’s returns in our opening story.5
Tax-efficient investing strategies can add up to 0.75% annually through smart asset location, tax-loss harvesting, and managing withdrawals to minimize tax impact.6 It’s not what you earn—it’s what you keep.
Strategic rebalancing maintains your target risk level and can add approximately 0.35% annually by systematically buying low and selling high—the opposite of what emotional investors do naturally.7
Proper asset allocation and diversification ensure your portfolio matches your goals, timeline, and risk tolerance—reducing the chance that a single market event derails your financial future.
Morningstar’s research reaches similar conclusions. Their “Gamma” study found that intelligent financial planning decisions can increase retirement income by 22.6%—equivalent to 1.59% in additional annual returns.8 Russell Investments’ annual “Value of an Advisor” study confirms that comprehensive wealth management delivers value exceeding typical advisory fees.9
What Comprehensive Portfolio Management Looks Like
At Scholar Financial, our fiduciary approach means we’re legally obligated to act in your best interest. For an annual fee based on assets under management, we provide ongoing, comprehensive wealth management that addresses each dimension of investment risk:
Risk assessment and management: We analyze your complete financial picture to ensure your portfolio’s risk level matches your goals and timeline—not just your comfort level in bull markets.
True diversification: We examine holdings for hidden concentration risks and construct portfolios with genuine diversification across asset classes, sectors, and geographies.
Tax-efficient strategies: From asset location to tax-loss harvesting to managing capital gains, we work to minimize the tax drag on your returns.
Disciplined rebalancing: We maintain your strategic allocation through market cycles, systematically capturing opportunities without emotional decision-making.
Behavioral partnership: Perhaps most importantly, we’re the voice of reason when markets test your resolve—helping you stick to your plan when every instinct screams otherwise.
So, What Risks are Hiding in Your Portfolio?
Remember Robert and Susan? Both faced the same market risk. The difference was that Susan had identified her risks in advance, built a plan to address them, and had a trusted advisor to help her stay the course when emotions ran high. Robert faced those risks alone—and paid dearly for it.
The research is clear: professional guidance adds substantial value that typically exceeds advisory fees. The behavioral coaching alone—helping investors avoid the timing mistakes that cost the average investor 2% or more annually—can more than justify the cost of advice.10
But you don’t have to take our word for it. We invite you to get a second opinion.
Get a Second Opinion from Scholar Financial
Whether you’re managing your portfolio alone or working with another advisor, a fresh perspective can reveal risks and opportunities you may have overlooked. Our complimentary portfolio review examines:
- Hidden concentration risks and diversification gaps
- Tax efficiency opportunities in your current holdings
- Alignment between your portfolio and your actual goals
- Risk exposures you may not be aware of
- Whether your investment approach is positioned to weather the next market storm
You may discover your portfolio is well-positioned. Or you may uncover risks worth addressing before the next market downturn reveals them for you. Either way, you’ll have the clarity to move forward with confidence.
Contact Scholar Financial today. Because when the next crisis comes- and it will – you’ll want someone in your corner.
About the Authors
Ron A. Rhoades, JD, CFP®
Ron Rhoades is an Associate Professor of Finance at the Gordon Ford College of Business, Western Kentucky University. He also serves as a financial advisor at Scholar Financial, a practice within XY Investment Solutions LLC. With a background as both an attorney and a CERTIFIED FINANCIAL PLANNER™ professional, Ron is a nationally recognized authority on the fiduciary duties of financial advisors.
Chris Brown, Ph.D., CFP®
Chris Brown is a faculty member in the Department of Finance at the Gordon Ford College of Business, Western Kentucky University, and a financial advisor at Scholar Financial, a practice within XY Investment Solutions, LLC. He holds the CERTIFIED FINANCIAL PLANNER™ designation and a Ph.D. in Finance. His research and teaching focus is on behavioral finance, retirement planning, and evidence-based investment strategies.
Endnotes
- Morningstar. (2024). Mind the gap 2024: A report on investor returns in the U.S. https://www.morningstar.com/business/insights/research/mind-the-gap
- Gao, D., Gao, J., & Ni, Y. (2023). The real return of mutual fund investors. SSRN Electronic Journal. https://ssrn.com/abstract=4547635
- SEC Division of Investment Management. (2000). Report on mutual fund fees and expenses.
- Kinniry, F. M., et al. (2024). Celebrating Vanguard Advisor’s Alpha. The Vanguard Group.
- Ibid.
- Ibid.
- Ibid.
- Blanchett, D., & Kaplan, P. (2013). Alpha, beta, and now… gamma. Journal of Retirement, 1(2), 29-45.
- Russell Investments. (2024). 2024 Value of an Advisor study.
- Kinniry, F. M., et al. (2024). Celebrating Vanguard Advisor’s Alpha. The Vanguard Group.
This article is for educational purposes only. Scenarios and references to client experiences are used solely to illustrate financial planning concepts. These examples may not apply to your individual circumstances. It should not be construed as financial, legal, tax, or investment advice, nor as a recommendation to implement any specific strategy, product, or investment. As a fiduciary, we provide advice tailored to each client’s goals and financial situation. Consult with a qualified financial professional before making investment decisions.
Prices, values, and other data are obtained from sources deemed reliable at the time of use, but accuracy is not guaranteed.
Advisory services are offered through XYPN Sapphire and its various IAR brands under which it operates. XYPN Sapphire is an SEC registered investment adviser. For additional disclosure and privacy information, please visit XYPNSapphire.com/disclosures.
