We planned some time ago to dedicate the month of March to discussing Investment Risk. At the time we did not realize how relevant this topic would become. First of all we will discuss what’s going on in the market right now. But more importantly, how we each need to view investment risk and some things to keep in mind as we go through the rest of this year.
This past week (2/22/21) we saw a somewhat sharp sell-off in the market. At this point we are not excessively concerned. We view this as a natural sell-off where we are seeing rotation from some of the “high-flying” tech names in the large cap sector into other sectors of the market that are projected to perform very well as we anticipate reopening our economy later this year. In addition to this there are some concerns regarding rising interest rates and on-going fiscal stimulus and the impact of these on the economy that contributed to this sell-off.
Regardless of why a sell-off occurs – which incidentally is a completely normal part of the investment cycle – you may feel some concern. Perhaps you find yourself thinking, “I don’t like how my account balance is changing.” Or “I’m a little concerned about this.”
That’s where it’s so important that you have a firm grasp of what investment risk means. In order to achieve the financial goals that you have, you do need to take a certain amount of investment risk in order to generate the necessary return to achieve your goal. There’s also the human element of investment risk. Where you need to evaluate how you react emotionally and behaviorally to the regular fluctuation in the stock market.
If you are someone who rarely checks your statements and doesn’t get overly concerned about the market dipping down by five or six percent in a short period of time, then you can perhaps afford to take a bit more risk in your investments. On the other hand if you are a person who is naturally more conservative or you notice your blood pressure rising as you watch the news, then perhaps you need to be more conservative with the investment risk that you are taking.
Either way, you need to recognize that if you are too conservative or too aggressive, you can put the achievement of your financial goals at risk. And that’s where having a trusted advisor to walk along side you in your investment journey – to walk you through the pros and cons of your decisions – to be your emotional shield – is so critical.
We would advise each of you to evaluate how you are feeling about where your accounts are at presently. How you’re feeling about the economy and stock market right now? Begin to consider if you have potentially too much risk in your investment accounts at this time. Then when you sit down with your advisor or have your next conversation, bring this up. As your advisor, we will bring it up, but it’s helpful if you are ready to discuss your thoughts and emotions. This will allow us to work through any adjustments that need to be made. Or perhaps together we will realize that you are in a good place for achieving the financial goals that you have.