Many of my investment advice clients are doctors. I recall their comments over the years about new technology that has provided patients with safer and more effective medical care.
The same advances in technology have taken place in the investment advice profession. Individual investors don’t have to suffer through the old ways of managing stock market risk.
Investment management strategies have largely stayed the same over the years. This is especially true of the “buy-and-hold” mentality of company 401(k) retirement plan account management.
Longstanding and widely-held investment management theories have failed to protect stock market investors from periodic stock market declines. Today’s investment management practices need to reflect the complexity of today’s stock markets.
The concept of asset allocation is a perfect example. Common sense has taken over from the academic theory. Age and stock market risk tolerance are no longer the appropriate stock market risk benchmarks.
What does a stock market investor’s age have to do with how much money they are willing to lose in a bad stock market environment? Younger stock market investors are no less fearful of the next great stock market decline than stock market investors nearing retirement.
Long gone is the company 401(k) retirement plan investment management theory that young stock market investors have the time to make up stock market losses later in their working lives.
Stock market principal has to be managed at all times. The U.S. economy and stock market environment is cyclical. Stock market risk needs to accurately reflect the current state of economic and stock market cycles.
Company 401(k) retirement plan participants need to take advantage of today’s investment management technology in order to avoid significant principal losses that can take years to recover.
A simplistic approach to stock market risk management is grounds for financial malpractice. Doctors don’t prescribe a treatment plan based solely on a patient’s age and how much pain they can tolerate. Instead they treat each patient with the best drugs, the best technology, and the best medical care available.
Ric Lager
Lager & Company, Inc.
