The Wild Wall Street Roller Coaster Ride


About the author: Chris Abts is the President & founder of Cornerstone based in Reno, NV.  He helps people to better manage their wealth so they can focus more of their time on what truly brings meaning and fulfillment to their life.  Abts is also the TV show host of Redefining Retirement, which airs every Sunday evening at 5:30pm on KTVN Channel 2. Chris has passed the Series 65 examination, earned the Certified Estate Planner (CEP) and Chartered Retirement Planning Counselor (CRPC) professional designations.

The wild wall street roller coaster ride

 The past few months have been a pretty good example of what the so-called, “Wall Street Roller Coaster” can feel like.  During this short time span, the S&P 500 went from a high of over 2900 in October all the way down to a low of under 2400 in December, and now it’s back up to 2800.  For many people, this was not a fun ride.

With this much volatility in such a short time frame, it’s easy to see why so many investors would like nothing to do with the stock market, especially those who are close to or already retired.  But is this the right decision?

As a general rule, I believe it would be unwise for just about anyone to have all of their money in the stock markets.  On the other hand, I do believe most people should have a portion of their money in the stock markets.  The simple reason is that, over time, equities can help the average investor to stay ahead of inflation and to grow their wealth.

But the question remains, how does one determine just what is the right amount of money, in their particular situation, to invest in the equity markets?  While some people will tell you to put nothing in the market and instead put everything you have into vehicles such as annuities, CD’s or bonds, other people will say that you should have the majority of your money invested in the market, without ever knowing anything about you and your goals.  At Cornerstone, we believe the proper way to determine the appropriate amount to invest in the equity markets is with a thorough analysis of your needs, your goals and your specific situation.  So here are four important questions you should be asking yourself to help you determine the appropriate amount you may want to have invested in the equity markets:

1.    What are your goals?

a.    In other words, what phase of life are you in?  Generally speaking, are you in the growth and accumulation phase of your life or are you in the preservation and income phase?  Younger investors, who have many years before they need to draw on their funds would probably be better suited to invest a greater portion of their portfolio into equities.  On the other hand, those nearing the retirement phase, and need income from their assets, may be better suited to holding a greater portion in income producing assets.

2.    What is your risk tolerance? 

a.    How much of a financial loss are you okay with in your investment portfolio?  At what point would you reach your “Uncle Point” where you believe you would need to make a change?  As a percentage or maybe even a dollar amount, how much loss could you stomach?  I have found that by helping clients to quantify their risk tolerance, on a scale of 0-99, we are able to help determine if their risk exposure is in-line with their risk tolerance.

3.    What is your current risk exposure?

a.    Regardless of whether you consider yourself to be a conservative, moderate or an aggressive investor, it is vital that you know your risk exposure.  Unfortunately, most investors do not really know the actual risks they are taking in their investments.  Most people we meet with are surprised to learn that the risk exposure in their current investment portfolio greatly exceeds their emotional risk tolerance.

4.    How much risk do you really need to take?

a.    Based on your goals, how much risk do you really need to take?  Assess your current financial situation, savings rate, desired retirement date and the amount of income you will need to maintain your lifestyle to determine how much you actually need to earn on your investments.  Do you need to earn a 3% or a 10% rate of return on your investments to achieve your financial goals?  Then, use an appropriate investment strategy that will allow you to take the least amount of risk to earn the returns you desire.

Once you have answered these four questions, you are on your way to making wiser decisions about how much of your money should be invested in the equity markets, and the appropriate investment strategies to achieve your goals, with the least amount of risk.

Obviously, there’s a lot more to planning for retirement, but it’s a good start.  There is so much to consider when it comes to retirement planning that you may sometimes wonder where do you even start. Coming up this Sunday on Redefining Retirement, which airs at 5:30pm KTVN Channel 2, we are going to share the 5 secrets to a rewarding retirement. If you’re still unsure whether you have too much or not enough money invested in the markets, or if you’re unsure whether you have enough money to retire, then call us to speak with one of our financial advisors today.  We look forward to meeting you.

Based in Reno, NV, Cornerstone is for individuals and families looking to grow wealth, protect and preserve their life savings, and plan for the distribution of their estate in a tax-efficient manner through a tailored strategy. Schedule a time to discuss your financial goals with us.

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