Risk is the most basic investment principle. Your investment return is a reward for the amount of risk that you take.
Most investment professionals base their presentations around historical investment returns. Individual investors believe that historical rates of investment return are the more important investment management criteria.
Historical investment returns have nothing to do with future investment returns. Historical investment returns can’t help individual investors preserve stock market gains.
Investment returns can’t be predicted. The future is always uncertain. The future always involves risk. There is a risk in any type of investment that you currently own. The key is to be aware of that risk and take the steps necessary to minimize the loss of your principal. The risk right now is that the stock market returns of the past five years will come to an end. Stock market prices could begin to fall. Historically, the stock market falls at a much faster rate than it rises.
When the current stock market risk level changes, your stock market investment strategy needs to change as well.
Most individual stock market investors recognize the change is stock market risk levels to late. They have no stock market risk management game plan in place. The end result to a falling stock market is an emotional investment decision.
The key is to have a logical and organized stock market risk management game plan in place before the next great stock market decline. That takes your emotions completely out of the stock market investment management process.
Ric Lager
Lager & Company, Inc.
