BY AL SEYMOUR, CHFC®, CLU®, CRPC®, CASL®, AEP®, CAP®
It is not uncommon for an investor’s risk tolerance to be challenged when large market selloffs occur. During these uncertain times, it is natural to question how your investment portfolio is allocated. Some questions you may be asking yourself are: What is my downside risk exposure based on my investment blend? How long will my investments stay down before I become overly concerned? Am I willing to take the risk needed to reach my financial goals? At Marzano Capital Group, we lean on technology that we feel helps our clients better understand their true risk tolerance. Riskalyze is a tool utilized in our office, and we strongly feel the program helps our clients more accurately evaluate their tolerance for risk over an extended period of time.
There are many additional questions that are relevant during these market cycles: Are you invested for the long run? Have you considered the opportunities created by market downturns, for instance, buying quality investments at lower prices? Are you aware there are no realized losses unless you actually sell? When will you and your family need income from your portfolio? Are your expectations realistic in both up and down markets? Has your risk tolerance changed due to large market swings?
These questions are important because they assist your financial advisor in creating a tailored portfolio based on your goals. Many investors desire the highest returns with the lowest level or risk. Riskalyze and appropriate asset allocation may help with this goal. If you, as an investor, would like to achieve the highest returns in any given market, you may be taking too much risk. On the other hand, if you are not achieving the returns you desire, it may be time to increase your stock exposure. Sometimes a more balanced approach is a good middle ground. A balanced investment strategy is a method of portfolio management aimed at balancing risk and return. Such portfolios are generally divided equally between equities and fixed-income securities.
We often talk about asset allocation, but what does it really mean? Investopedia defines asset allocation as an investment strategy that aims to balance risk and reward by apportioning a portfolio’s assets according to an individual’s goals, risk tolerance, and investment horizon.
Even if your portfolio is well balanced or well-diversified based on your given risk tolerance, investors will still be susceptible to volatility and downturns in the market. This is normal. We at Marzano Capital Group try very hard as financial professionals to create portfolios that are appropriate for our clients; however, it is not a perfect science. This is why it is extremely important to ask the questions previously mentioned. As I see it, and often convey to my clients, together, we are a team trying to help you reach your goals and your input is needed.
These periods in a down market are never easy, but historically, markets have recovered. Patience is not easy. Remember, the media’s general advice is not based on knowing the facts about you, your emotions, your goals, or your investments. Reach out to your advisor and share your concerns. It is truly a team effort.