This past weekend, I was driving to our son’s swim meet. I was running a few minutes behind, so I was driving slightly over the speed limit. But I had my trusty, popular GPS app that alerted me to potential law enforcement personnel. Sure enough, I received an alert and I slowed down. Now, rewind to late last year and I was on the SAME highway, going to a previous swim meet, and I was NOT using my trusty, popular GPS app. Sure enough, I was speeding and there was a law enforcement officer to ensure I paid the consequence. Now, just so you don’t get the wrong impression, I estimated that this was the first speeding ticket I have received in at least 15 years. On top of that, the one I received ~15 years ago was an incorrect citing. The officer got the wrong car! I wasn’t even speeding then, but that is a story for another time.
Back to my recent experience, as I was slowing down after being alerted, I noticed an SUV speeding by me in the fast lane. The motorcycle officer did not pursue that person even though they were definitely traveling well beyond the posted speed limit. I thought to myself “Wow, they got lucky.”.
This reminded me of experiences with new clients at different times. There have been many instances where we have worked with a new client, analyzed their situation, mapped out their financial plan, and determined that their investments are far too aggressive for their plan and their true risk appetite. It is important to note that this is more easily addressed prior to cyclical market declines. Prior to a market decline, an investor can be “speeding” along, too busy with their life to understand the risks they are taking. If we can realign their investments prior to a decline, then that is both prudent and “lucky”. The more challenging scenarios involve helping new clients AFTER a market decline has occurred and, in which, they were not positioned correctly for their overall goals and objectives. The common occurrence has been for them to take on too much risk right before they were looking to transition to the next phase of their life (often retirement). They were far too aggressively invested and took a tremendous amount of the downside volatility and now it will take them longer to catch up or sometimes they must make some adjustments like working longer or spending less.
It is important to understand the risks we take and why we take them. By the way, risks cannot be avoided, they can only be managed or transferred from one type of risk to another. For instance, if you do not feel comfortable with the volatility of the stock market, then you should attempt to manage it either yourself or with professional help. If that does not work, then it’s possible you should avoid it altogether, but even that action step does not eliminate your risk. It simply shifts the risk to something else. You see, if you hold your assets in low-yielding investments which have more principal safety, then you are taking on purchasing power risk. That is the risk that your money will not keep up with inflation and thus will be worth less in the future than it is today.
Do you know what risks you are taking and WHY? If not, we can help. If you have been running your own financial plan without the help of a professional and you find yourself “stuck” after this year’s market decline, let’s talk. We’ve seen this before and we know how to help. If you feel like your current advisor has you too aggressively positioned, let’s talk. We can run a complimentary, objective risk assessment on your investments and on you personally to see if your investments truly match you as a person. If they match, then that is a good start to determining if you are on the right track, if not, then we can talk about an action plan to help optimize your financial future.
By the way, as it turns out, our son’s swim meet was running behind, so I was not late after all. I got lucky. Our son has been putting in extra time for practice and he did great in his swim meet. He dropped time in several events! I am super proud of his effort.