HOW DO YOU VIEW RISK?
Volumes of technical journals, even entire books, have been dedicated to the subject of risk, but in layman’s language, it may simply be the likelihood of having a sufficient amount of money, at the precise time we need it. In the short-term, it could be having the financial resources to fund a daughter’s wedding, or paying college tuition. In the long-term, it might be to fund retirement, including all those attendant costs, such as health care and/or assisted-living expenses.
Unfortunately, many folks tend to concentrate on market volatility, the natural ebb and flow of stock market prices. These fluctuations are almost as predictable as the changing of the seasons. Almost everything in life is cyclical, and temporary extremes in markets should not be any more unexpected than that occasional November snow. (It will usually be “offset” by a Spring-like week of warm temperatures.) So it is with the financial markets; an ugly period of under-performance is normally followed by a period of extreme prosperity, or over-performance.
In one’s lifetime, there will be several epochs of up/down markets, but most importantly, we should achieve our goal of “having a sufficient amount of money at the precise time we need it”, if we are properly positioned among various asset classes, i.e., stocks, fixed income securities, commodities, etc. Each of these assets will perform differently during certain investment environments, but if we stay the course, adhering to our investment plan, rather than the whims of the markets (or our own emotions), we will enjoy a reasonable assurance of reaching our plan objectives.
We can tweak our plan, of course, to enhance returns and/or reduce risk, such as a “call-writing” strategy, or slight adjustments to asset-weighting when appropriate. Your wealth manager can be a valuable resource for discussing these ideas, to insure a good night’s sleep…. as well as your peace of mind.