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Take Your Pick: Sleep Well or Upset Stomach


There are cycles to markets and no one really knows when a small hiccup or a seismic shift may occur. Although the market over the past weeks has rattled some investors, the advice from advisors seems to be hold your course and do not do anything rash.

The stock market beginning early October, 2014 and over the past few weeks has certainly caused investors some concern. Or has it? That depends on how your portfolio has been positioned and the risk-return ratios established. Every investor should realize market movements are just that…prices rise and fall because of current news, anticipated announcements, how traders may bet or events — national and international. The shift of market movements is unknown to most, uncaring to some and remains an enigma to others. Why markets move erratically at times cannot be answered. However, there are those pundits who give their opinions, or perhaps better considered as guesses. According to some economists the US economy is recovering albeit slowly, but some international markets and countries are not doing as well. This in effect can have a negative consequence on our goods and service exports, as our dollar strengthens vs. other currencies.

There are cycles to markets and no one really knows when a small hiccup or a seismic shift may occur. Although the market over the past weeks has rattled some investors, the advice from advisors seems to be hold your course and do not do anything rash. The markets over the past couple of years have done well for many investors and corrections are a normal occurrence. The verdict is out as to whether the current market ride was an anticipated correction. The bottom line to most investors is how much of a loss did they take, and probably only on paper, if no sale was made.

Do You Have a Plan?

The question that presents itself is what type of investor are you? Are you an investor that listens to pundits who tout the next best pick? Do you do your own thorough and exhaustive research? Do you work with a financial advisor who is a fiduciary or financial planner who is only interested in meeting a suitability standard? How much of a downturn are you willing to accept before selling or upturn before you take your profits? Is there any rhyme and reason for what you do, why you do it and accept the results?

All asset classes have inherent risks. The greater the standard deviation of an asset; the greater chance for profit on one side and loss on the other, as noted on a bell curve. There are assets that have a lower standard deviation vs. other asset classes and this ultimately will affect the volatility of the up- and downside of returns.

Ultimately, the determination of an investing personality may help elucidate how an investor utilizes their style of self-explaining their trading actions. It may be stated with a degree of certainty that investors, despite having similar demographics, i.e., age, similar net worth, family dynamics, may develop totally different financial asset allocations and goals.

In other words, similar people often times get very different results with their investing. This is what makes each of us unique as to how we view and approach investing, select asset allocation and develop a portfolio design.

What is Your Risk Tolerance?

The determination of risk tolerance usually begins with an Investment Policy Statement (IPS) which helps ascertain how an investor views asset classes and associated risk. Concomitant concerns may include self-savings vs. debt ratio, projected financial needs for the short, mid-, and long term, projected income stream from inheritance, Social Security, 401(k), IRA or pension distributions, etc. All of these important factors ultimately help develop a strategy for investing, saving or in some instances spending. The thought being, if you don’t know where you are you cannot know where you are going!

Unfortunately, some investors realize too late that their perceived needs are greater than their ability to attain their required result. Time is unforgiving and continues without regard to the necessities, wants or desires of anyone. The earlier an investing, savings, and debt-reduction plan is begun the greater the chances of a successful financial outcome. The later a plan is started the more difficult and expensive it is to achieve a similar result. Prioritize your life’s goals and act on the factors which will allow you to make them a reality.

Know Your Plan

Establish your core financial base by determining your net worth and knowing your income, assets, and expenses. Recognize your risk tolerance and always be mindful of your established asset portfolio. Determine your tolerance for market swings, have a plan of action and make objective decisions. Even with all of this, consider working with a financial fiduciary professional, i.e., Certified Financial Planner. Research has clearly indicated that those investors who consult with a CFP professional or other fiduciary advisor generally earn a greater return with potentially decreased risk exposure. Having an objective examination performed of an investor’s entire financial picture vs. attempting a piece meal approach to investing is a smart decision.

Understanding how assets are correlated (or not) and interact with each other and the need for diversifying assets in a portfolio are strategies used to minimize “market noise” and smooth out market turbulence when it occurs. Once your financial goals are established and the necessary actions steps are instituted to ensure your anticipated results will likely be successful, I think you will agree…it is better to sleep at night vs. having an upset stomach!

H. William Wolfson, DC, FICC, MS, MPASSM is a financial consultant and advisor. After passing the rigorous Certified Financial Planner™ examination, Dr. Wolfson obtained a Master of Science in Personal Financial Planning from the College for Financial Planning. He was subsequently awarded by the College a Master Planner Advanced StudiesSM. Dr. Wolfson is a member of the Financial Planning Association (FPA). Dr. Wolfson retired after 27 years of active practice and remains active volunteering his time to the continued education and success of colleagues in assorted professional organizations. Dr. Wolfson may be contacted at drhwwolfson@gmail.com.

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