There is no stock or bond market investment return without risk. This is an especially important concept to remember as we have seen all-time stock market high price levels in the last two months.
It is very important for you to be aware of the amount of investment risk that you are taking now with your stock market investments.
The most common way to assess your stock market investment risk is through a Risk Tolerance Questionnaire. Almost every investment firm has a document like this with a similar name and intent.
The main part of the questionnaire is to determine how you would feel if you lost money in a declining stock market. Questionnaires ask logical questions. The problem is that the answer to a stock market risk question is not logical. The answer is always emotional.
All Minnesota individual investors can handle stock market risk when the stock market is rising. When the stock market falls, everyone is focused on the preservation of their stock market gains.
There were multiple casualties from the last great stock market decline of 2008-2009. Young parents who had saved for years in order to start their children’s education saw their college savings funds cut in half. Working adults nearing retirement woke up to the realization that they had to keep working for several more years.
The financial services industry buzzwords won’t help you manage your stock market risk. Buy-and-hold, diversification, and asset allocation don’t work as promoted and advertised. When the stock market goes down, there are few places to hide.
Whether the current stock market slide is a brief correction, or a complete change of direction, you need to have a principal preservation plan in place now.
Ric Lager
Lager & Company, Inc.
