Laurence Hale, AAMS®, CRPS®
Principal/Managing Partner, Investment Advisor & Chief Investment Officer
It’s always important to check in on your investments (including your retirement plan) at the mid-year mark. It allows you to make timely adjustments to your investments so you can be sure you stay on track with your financial strategy and goals. With the volatility of the markets lately, this year is no exception.
History has shown that successful investing requires discipline and patience. But when emotions and investment risks run high, it can be easy to lose focus on your investment strategy.
To help you overcome these challenges, here are four important guidelines to keep in mind.
First, be sure you understand investment risks.
Investors need to remember that markets can be turbulent and that preparing for potential declines is essential. There can be a strong temptation to pull out of markets when they become volatile. However, instead of acting on this temptation, it may be smarter to adjust your investment approach. By remaining flexible, you might be able to take advantage of opportunities while managing risks.
- Interest rate risk is the potential for investment losses resulting from a change in interest rates. If interest rates rise, for instance, the value of a bond or other fixed-income investment will decline.
- Market risk is the risk that arises from movements in stock prices, interest rates, exchange rates, and commodity prices.
- Currency risk is sometimes referred to as “exchange rate risk” and arises from the change in the price of one currency in relation to another. Investors that have assets or business operations across national borders are exposed to currency risks that may create unpredictable profits and losses.
- Inflation risk is the risk of the purchasing power of your dollars today decreasing over time. If you are not growing the value of you’re assets at least at the rate of Inflation over time, you may not be able to buy the same things you can today In the future.
Next, find your ideal balance.
A variety of factors may cause one to act more cautiously than normal, including ongoing global uncertainties and fears about the overall economy. This can lead to investors flocking to low-risk investments despite misalignment with their goals. Remember, while minimizing risk can feel like a safe move, you could miss out on opportunities as a result.
Another mistake can be creating a portfolio that doesn’t reflect your overall risk tolerance. When building a portfolio, the objective is to take on the amount of risk that aligns with your goals and time horizon. This is often accomplished through a diversified mix of assets that may help manage your portfolio’s risk. It’s important to remember that asset allocation is an approach to help manage investment risk, however it offers no guaranteed protection against investment loss.
Leave emotion at the door.
When markets swing, emotional decision making can wreak havoc on the most carefully designed investment strategies. Fear and greed can drive anyone’s financial decisions. Fear can cause us to abandon an investment strategy when the outcome is not what we want, while greed can cause us to chase investment fads and assume too much risk. As you invest, you can support your strategy by attempting to manage these emotion-based decisions.1
Enlist the help of an investment professional.
An investment professional can help find the right balance of investments for you based on your risk tolerance, goals and timeline, and can help when emotions enter the decision-making process as well. When markets decline, they can answer questions, provide reassurance, and show you the opportunities that volatile markets may provide.
We do an evaluation of goals versus risk tolerance for all our clients as the first step in our Plan Well, Invest Well, Live Well strategic financial planning process. If you’re ready to find your balance and partner with a professional to reach your financial goals, contact us for a consultation.
Presented by Principal/Managing Partner Laurence Hale, AAMA, CRPS®. Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. 697 Pomfret Street, Pomfret Center, CT 06259, 860.928.2341. http://www.whzwealth.com These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your financial advisor. Weiss, Hale & Zahansky Strategic Wealth Advisors does not provide tax or legal advice, and nothing in the accompanying pages should be construed as specific tax or legal advice.