The impact of our behavior on financial decisions is
something that is getting more and more needed attention in the financial
planning industry. As volatility has picked up in the investment markets
in recent days we thought it was a good time to re-address the philosophy we
implement.
As we stated in a previous
post, borrowing
a line from a colleague: the “markets” tend to take the stairs up, and the
elevator down. Knowing this, and being prepared for how it will impact
your investments, will help us all make better decisions when the elevator
doors open.
During the past 5 years we have seen the U.S. stock markets
follow the stairs up. During this time we have continuously rebalanced
your portfolios to ensure you are not taking on too much risk. I am sure
you have heard Tim or I say that the time will come when the “markets” will
take that elevator ride down. The question is not “if” an elevator ride
down will occur, but, “when” an elevator ride down will occur. Next
week? Next year? In five years?
Sorry, but, we don’t know the answer to this question.
We do know that when the time comes we should take the same approach we have
during the stairway up, to rebalance your portfolio to the appropriate level of
risk. It is during these times on the stairs that we should consistently
be revisiting your goals and understanding the appropriate level of risk for
your investments, whether they are traditional stocks & bonds, real estate,
or private investment opportunities. This will allow us to understand
what we expect to happen to your asset values during the next elevator ride
down, before it occurs. Being prepared for this should help us make
better educated, more rational, decisions when the time comes since the ride
down may occur faster than the climb up.
To help us assess risk, we have asked many of you to
complete a brief questionnaire from RiskAlyze that focuses on the dollar amount
gains and losses you would be comfortable with in a 6 month period of
time. If you haven’t completed this yet, please
expect to hear from us in the coming months. This is an exercise
we plan to revisit with you on a regular basis.
As always, we are here to answer any questions you might
have.
