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Risk On/Risk Off?

Irvin W. Rosenzweig CFP®, ChFC®, CLU®, CRPS®, AEP®, AIF® 

Our prayers for those suffering from COVID-19 and gratitude to health care workers on the front line treating the ill and seeking a cure for this terrible virus. 

What began as a health crisis has readily become a financial crisis especially to those individuals and businesses unable to function in our state of supreme caution.  Panic is pervasive and when faced with stress it is easy to react in the moment without an understanding of the longer-term consequences. This is certainly the case regarding investing and planning decisions that are key to your financial success.

I have served in wealth management for 34 years, managing hundreds of millions of dollars for families and businesses. I also practice and hold multiple black belts in martial arts. I share this background to demonstrate the need for balance and clarity during these seemingly irrational times.

Risk On/ Risk Off? Neither!

We should not live in extremes, especially regarding investing. The fact is stock market news is a 24-hour occurrence and headlines are sensationalized to appeal to and stimulate our strongest emotions of fear and greed.

Things to consider in this heightened state:

  • A well-designed financial plan should consider the allocation necessary to fulfill a client’s goals.
  • Financial data, as well as goals and tolerance for risk, need to be assessed and extrapolated to potentially target a successful asset allocation and overall financial plan.
  • RZ Wealth believes it is fundamental to calculate the minimum amount of risk necessary to succeed.  In establishing this baseline, decisions can then be made relative to risk tolerance or the modification of goals.
  • In charting the history of the long-term and pervasive nature of inflation, stocks are the only proven successful asset class.
  • Stock market risk may not be an option but a necessity in today’s historically low interest rate environment coupled with the increased risk in higher yielding instruments.

RZ Wealth recommends seeking the following steps to help achieve a successful investment plan:

One: Use a program to track expenses and assets such as Mint, Quicken or others but make sure that security is a top consideration.  (Knowing what you spend and what you spend it on is fundamental to any financial plan.)

Two: Assess your risk tolerance and sensible goals for the future.  Understand that there may need to be trade-offs such as the notion that less risk will not translate to an early retirement, etc.

Three: Avoid unnecessary expenses and inefficiencies such as higher fees, tax burdens, foreign taxes, etc.

Four: Explore methods of minimizing risk through asset allocation, diversification, hedging risk and shifting risk through insured products.

Five: Create a baseline plan and asset allocation that determines the minimum market risk needed to target a successful financial plan. More risk could be taken as an option and less risk may be taken through modification of goals.

Six: Understand that assets in the market are “risk assets” that will be sensitive to market risk for short-term holding periods.  Historically, risk assets have proven successful in longer-term holding periods, exceeding 5 years or longer.  This positions the stock market against the ravages of inflation which is what it is destined for.

Seven: Banks exist for a reason.  For liquid assets, including checking, near-term savings, and a specific need, a bank, a bank instrument such as a CD or something similar such as short-term treasury or high-quality bond are the investments of choice.

Eight: Beyond conservative investments needed for transactions and short-term needs, the objectives are usually growth or income, or a combination of the two.  In these cases, for longer-term success, the market has historically proven to be a better solution.

Nine: Rebalance your asset allocation at least annually to keep the percentage of risk assets vs. non-risk assets in sync with your risk tolerance.

Learn more HERE about how RZ Wealth can help advise you on wealth management and your overall financial plan, please call us for a consultation. We are committed to our clients’ well-being in every sense and are focused on their ability to lead a “richer life!”

*What’s this? This content is made possible by our sponsor. It is not written by and does not necessarily reflect the attitude, views, or opinions of the Main Line Today editorial staff.

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