“Two super-contagious diseases, fear and greed, will forever occur in the investment community. The timing of these epidemics will be unpredictable. We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.” ~ Warren Buffet
With the current volatility of the stock market, it is hard to not consider the “risk” you are taking in your investment portfolio. Let alone, you have to wonder if you should be investing more. Sir John Templeton, considered by Money Magazine to be “arguably the greatest global stock picker of the century” has been noted for saying that “the best time to invest is when you have the money.” No concern for the timing, but more concern for the time you have to hold the investment.
We all like to see our accounts go up. But investing means that sometimes the accounts go down. If they are not going up and down, then this is saving, not investing. True investors “bear” the down of the market better than most, but it is doubtful that they do it with a smile.
At times like these the focus for many of us is on “market” risk…the fluctuation of the stock market (or even bond market, or commodities market.) But risk comes in many varieties and an understanding of these can help us focus on what risks we are truly trying to avoid. Living with market risk can possibly help us avoid other risks that can be more damaging to our income and lifestyle.
Interest Rate Risk comes when a portfolio is too weighted in bonds. Bonds (which are often considered more conservative, can actually lose value when interest rates rise – the environment we are currently in.)
Liquidity Risk means it is difficult to sell an investment at a fair price.
Credit Risk is a consideration when a company or government is not able to pay to it its investors.
Longevity risk is a concern if there is a chance that you will outlive your investments or income.
Allocation risk means that your portfolio is too heavily weighted in “safe” and low interest rate investments that have no potential to grow.
Timing risk happens when an investment is needed before it was planned for issues like job loss, death, or divorce.
Health Care risk which has become a major concern as investors take their investments prematurely to cover medical of long-term care needs. The risk is accelerated for a couple when assets are used for one and nothing is left for the other.
Legacy risk exposes the investor’s heirs when the assets are not realized because the estate planning or beneficiary arrangements are inadequate. Assets go to the wrong sources, including that they go to probate or taxes.
And there are other risks . . .
The important thing is to be well diversified, well-funded, well planned. Focus not only on market risk that can often be addressed with good allocation and timing, but on the risks that go beyond the volatility of the stock market. The risks that jeopardize your life-style and your income.
Securities & Investment Advisory Services Offered Through H. Beck, Inc. Member FINRA, SIPC. 6600 Rockledge Drive, 6th Floor, Bethesda, MD 20817. (301) 468-0100. H. Beck, Inc., and The Musuneggi Financial Group, LLC, are not affiliated.