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By Christine Benz and Jason Stipp | 07-09-2015 03:00 PM

A 5-Point Portfolio Risk Checkup for Investors

Audit your investments for overexposure to riskier equities, geographies, and interest-rate sensitive fare with these tips from Morningstar's Christine Benz.

Jason Stipp: I'm Jason Stipp for Morningstar and welcome to The Friday Five.

Market volatility has picked up in recent weeks due to a variety of factors. Sitting in this week for Jeremy Glaser to discuss the five risk factors that should be top of mind for investors is Christine Benz, our director of personal finance.

Christine, thanks for joining me.

Christine Benz: Jason, it's great to be here.

Stipp: There has been no shortage of things causing market volatility. We've had interest rate concerns. We've had Greece and Puerto Rico. We've had China. At some points, all of these in the same day; that happened this week.

But it's rarely a good idea to upend a portfolio plan just because we hit some turbulence in the market. However, you say that this can be a good time to do a quick and dirty audit of the risks in your portfolio. You're going to run through some of those today.

The first risk factor you should look for is too much equity exposure in your portfolio. How do you know what is "too much"?

Benz: Ideally, you'd be operating with some sort of an asset allocation framework that makes sense for you given your life stage. Some folks may say they don't have such a blueprint, at which point I would say it makes sense to get one. Make sure that you are operating with some sort of a plan, because if you don't have a plan you are just going to be responding to headlines, and that's usually not productive.

I often advise people who don't have such a framework to look at our Lifetime Allocation Indexes as a starting point, or maybe a good target-date fund that's geared toward someone in your same age band. Those are good very basic pieces of asset allocation guidance that you can use.

Compare your current asset allocation using Morningstar's X-Ray functionality with that target and see where you are. Chances are, if you've been very hands-off over the past few years, that's been a good thing in that equities have performed well, and if you haven't trimmed them back, that's been to your credit. But I think it's probably a good time for investors who haven't done anything to think about rebalancing. Many portfolios are probably too heavy on equities given the investor's life stage, and those equities could use some trimming. Use that big-picture blueprint is a starting point for figuring out what to do next.

Stipp: So even if you set up your asset allocation a few years ago, it's important to check and make sure you are still on those targets.

Risk factor number two is exposure to risky geographies. It seems like there is no shortage of those. But there are different risks to consider maybe for each of them. Let's start with the big one, which is China. What should you be thinking about with your exposure there?

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