Hello, we hope you’re enjoying the warmer weather to kick off vacation season.
As the mercury rises, so are many investors’ concerns over the markets and their financial plans. During extremely volatile market phases – like what we’ve seen so far during the second quarter of 2022 – it is natural for even the most seasoned investors to be troubled, bringing an oft-misunderstood concept to center stage: Risk.
There’s risk in hoarding cash as inflation skyrockets, eroding your purchasing power by the day. There’s risk in having your funds in stocks when markets whipsaw by double digits within days. There’s even risk in the so-called “safe haven” of bonds when asset values have been far more correlated to stocks than history teaches us to expect.
You can’t avoid risk in economic times like this, but you can have a strong plan that allows you to sleep easy while the news becomes increasingly filled with doomsayers.
Simply put, understanding your tolerance, capacity and use for risk should be a cornerstone in your financial plan regardless of the economic season. Though, during the economic and market conditions we’re now seeing (Q2, 2022), it’s particularly important as emotions tend to have outsized impacts on evaluating risk in your decisions.
Finding your correct portfolio risk starts with setting realistic goals for your future, weighing factors like your family situation, your finances, your health and your income prospects. After the correct risk strategy is identified and implemented, withstanding the downsides of any investment strategy is possible, so long as your eyes remain on the goals and not the daily path.
Understanding what risk level is appropriate for our clients’ portfolios comes down to three questions.
- Can you stomach it?Some investors are wired in such a way that these 3-4 percent days up or down in the market have no impact. For others, the thought of their portfolio being exposed to a potential double digit drop in a short window of time will never be acceptable. This question is about your psychology and personality, it has nothing to do with your financial situation, and there is no right or better answer – we are all just built differently and respond to volatility differently. It’s about being honest with yourself.
- Can you afford it if it doesn’t work out?Some investors may have an iron stomach when it comes to volatility, yet their family situation or financial circumstances may preclude them from responsibly taking the risk. If there is little wiggle room in the financial plan, adding more than necessary risk can derail it easily. In these situations, we advise taking a hard look at your goals and ambitions to determine if they’re realistic given your situation.
- Is it necessary?At LotusGroup Advisors, we never tell our clients what goals are worthwhile and which are foolish. That’s not our place. For most clients, this question has little to do with buying luxurious yachts, but often much to do with desires to fund education for their children and grandchildren or ensure the wealth they’ve built can be preserved for generations. In situations where the goals are lofty, and the stomach is iron, it could make sense to put a piece of the portfolio in riskier investments that give the best chance to achieve the stretch goals after the fundamental necessities are covered.
After these three questions are addressed, we’re left with the single most important question related to risk: “What is the smallest amount of risk possible to achieve your goals?”
Appropriate risk management will be a driving force behind your portfolio returns and financial plans’ long term successes in the years to come. That’s why our advisors work with every client to ensure as market conditions change, we are constantly evaluating to ensure clients risk levels are in line with their plans.
It is LGA’s mission statement to Make. Life. Count., and we believe that is best achieved by living your life without daily concerns over how a portfolio responds to the most recent news alert. As always, we are grateful for your trust and friendship.
If you have any questions, or you would like a second set of eyes to look over your risk levels, please don’t hesitate to reach out.
Cheers,
The LGA Team
This blog expresses the author’s views as of the date indicated, and such views are subject to change without notice. LotusGroup Advisors, LLC, a federally registered investment adviser, offers investment advisory services. LotusGroup transacts business only in those states where it is appropriately registered or is excluded or exempted from registration requirements. The information contained within is believed to be from reliable sources. However, its accurateness, completeness, and the opinions based thereon by the author are not guaranteed – no responsibility is assumed for omissions or errors. The views expressed herein reflect the author’s judgment now and are subject to change without notice and may or may not be updated. Nothing in this document should be construed as investment, tax, financial, accounting, or legal advice. Each prospective investor must make their own evaluation and investigation of any investments considered or of any investment strategies described herein (including the risks and merits thereof), should seek professional advice for their particular circumstances, and should inform themselves as to the tax or other consequences of any investments or services considered or described herein.
LotusGroup’s advisory clients will be required to execute an Investment Advisory Agreement and related Account opening documents (collectively, “Agreements”). If any of the terms or descriptions in this presentation are inconsistent with the terms of the Agreements, such Agreements shall control. Prospective investors should maintain the financial capability and willingness to accept the risks associated with any investments made, and should consult the relevant investment prospectus or legal documents, and should their Advisor Representative before making investment decisions (including but not limited to an examination of the investment objectives, risks, charges, and expenses of any investment product(s) considered). To better understand the nature and scope of our advisory services and business practices, readers are encouraged to review via the SEC’s website @ www.adviserinfo.sec.gov, the adviser’s Form ADV Disclosure(s), and the Form ADV 2B Brochure Supplement of each LotusGroup Investment Professional. Additional important disclosures can also be found at www.lgadvisors.com, or by calling us at 720.593.9861, e-mailing us at info@lgadvisors.com, or by visiting us at our offices located at 1005 S. Gaylord St., Denver CO 80209. This blog, including the information contained herein, may not be copied, reproduced, republished, or posted in whole or in part in any form without our prior written consent.