Have you ever been on a roller coaster ride and as the coaster car approaches the top of the steep initial climb, you regret having gotten on the ride? At that moment, you have two options. You could attempt to jump off the ride, but you would be assured of an injury, or worse. A slightly better option would be to endure the ride to the end and hope that your nerves survive the ordeal. It is an imperfect metaphor, but choosing an unsuitable portfolio risk level can put you in a similar position when markets sour – jump off and get hurt, or unhappily ride it out. Turbulent markets are not the time to reduce your risk level. Lowering your risk level would likely turn temporary market declines into actual losses. That doesn’t mean you shouldn’t do anything in a market decline. In fact, there is one thing that all investors should do, and that is to do a thorough assessment of your feelings about the markets and your portfolio. Does the volatility in the markets merely feel unwelcome or is it making you uncomfortable and anxious? Be sure to write down as much as you can about how you are feeling and bring this to your next meeting with your financial planner. One of the most difficult things a financial planner does is to attempt to discern your ideal risk level. The best way to assess risk tolerance is to have actual documented client experiences from difficult market periods. If your portfolio is literally keeping you awake at night, your financial planner needs to be made aware of this. It is possible that your financial plan can be adjusted to work with a lower risk level. Regardless of if your nerves are steady or reactive in a market decline, the best thing you can do is document how you are feeling and share it with your financial planner.
IMPORTANT DISCLOSURE INFORMATION
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