Minnesota stock market investors are often confused on how to best manage their stock market risk. If you break stock market risk into two parts, it is much easier to understand.
The first part of stock market risk is “what to buy.” Far too many individual stock market investors only focus on this part of stock market risk.
The truth is it makes little difference what you own in a rising stock market. Some investments will do up in value at a higher rate than others. But everything you own in the stock market goes up in a rising stock market environment.
Don’t ever tell your investment advisor that you are now aware of this fact. He or she is still of the opinion that their knowledge of what you should own is worth the investment advisory fees that you pay them every year.
Eventually, the U.S. stock market will go through another stock market crisis similar to the one from July 2008 to March 2009. It makes no difference what stocks you own when the stock markets decline. The value of all U.S. securities goes down with it.
The second part of stock market risk is much more important to individual stock market investors. That part is “when to sell.”
If you can limit your participation in the next great stock market decline, you will protect your recent stock market profits. You will also have more money to invest when the stock market heads higher.
I always drill into my client’s heads both parts of a game plan for stock market risk management game plan. I never let my clients get surprised by the next great stock market decline. When the stock market risk level gets too high, my client’s know that we have a game plan in place to manage that risk level.
Remember that managing the risk of stock market investing is as much about the “when” as it is about the “what.”
Ric Lager
Lager & Company, Inc.
