As a Certified Financial Planner (CFP®), one of the most important parts of my job is assessing each of my client’s comfort level with risk. How I help a “white-knuckle” investor reach their goals is very different from how I work with a client who is at peace with the market and comfortable with focusing on the long term. Interestingly, it is the white-knuckle investor who faces the greatest risk of all. What increases that risk the most? The answer may surprise you.
According to the bulk of available financial planning research today, the main cause of risk for investors isn’t a prolonged bear market. Sure, a far-reaching, multi-decade market crash could come that causes every portfolio to suffer from a prolonged period of terrible market returns, but history says that’s fairly unlikely. It’s even more unlikely if you have a financial plan that is designed to gradually decrease volatility and risk in your portfolio the closer you get to retirement.
So if the market isn’t the biggest element of risk, what is? You, the investor.
The fact is, in times of market volatility, sticking to a plan is often the hardest part of long-term investing. And how investors react to movement in the market is the greatest risk of all. But a quick look at the history of the market offers some perspective that can help reduce that risk and keep you on track—no matter what curve ball the market throws next. Here’s what you need to know:
Years ago, I happened to sit next to an airline pilot on a particularly turbulent flight. On his other side was a white-knuckle flyer. I loved hearing the pilot calm the nerves of the scared passenger. What he said was this: “No one likes turbulence, but other than a spilled coffee of two, it has no impact on your safety. As pilots, we have to weigh the comfort of flying around a storm with the time we lose by doing so—and the potential for arriving 20 minutes late and causing passengers to miss already tight connections.“ In other words, it’s a choice that’s all about comfort. Safety—or risk—isn’t even part of the equation. (Luckily it is the pilots, not the passengers, who get to make the choice!)
In the investing world, financial advisors are much like pilots, using our knowledge and expertise to help each client reach their desired destination (usually retirement) while keeping them as comfortable as possible along the way. Here are just a few ways your financial advisor can help you safely and comfortably reach your goals when the market swings south:
As a physician, you’re as unlikely to know how to manage your complex financial needs as I am to know what quantity of antibiotics will cure my ear infection. That’s precisely why your patients come to you for help—and why wise investors get help from a Certified Financial Planner. Risk will always play a role in investing, but with the help of a trusted financial advisor, you can assess and mitigate risk, manage your emotions and, ultimately, be sure you’re on track toward your retirement goals so you can enjoy the flight!
Advisory services offered through EWG Elevate, Inc. dba Protection Point Advisors.
This represents a partial list of clients. They have not been compensated and were not selected based on duration, performance, account size.