The Verus Team

Things Seem Good – Time to Review Your Risk Profile?

Written by: The Verus Team. Opinions are those of the Verus Team and not necessarily those of RJFS or Raymond James.

We have recently been holding similar discussions with a number of our clients.  In each case, the value of their investments is as high as it has ever been, and lately, there has been no strong catalyst to change much of what we have been doing.
I don’t want to say there has been a general sense of complacency, because the drama in Washington DC continues to cause consternation; but with markets and portfolio performance, we are certainly not feeling much anxiety these days.  With interest rates low on a historical basis, and quarterly earnings coming in strong on a year-over-year basis, a compelling case can be made to stay the course and ride the wave in owning stocks. 

Why not?
It appears as though the recent jump in interest rates has settled into a range.  The global economic landscape appears to be improving (based on the performance on some of the international stock markets), and we are continuing to hear pro-business rhetoric from our current US policy makers.  

What can go wrong? 

Well, that’s just it, we never know..  

While we are usually not the ones to call for a doom-and-gloom scenario, and we are not doing so now, the question we have been asking lately is – What if? 

What if something unexpected were to happen, and happen fast?  How would you feel right now, if the markets were to decline to the extent they did in 2008?   

When one steps back and considers that you most likely have more assets at risk now, with less time to recover than you did almost 10 years ago, would you be willing to trade upside for more protection?  

Perhaps your answer is “No!”  You are comfortable with your allocation and your exposure, and that is perfectly fine.  Our point is that the past several years have been a great time to own stocks, and investors have benefited.  For most investors, they now have more money than ever before, and as is always the case as years go by, less time than ever before.  

We step back and ask - at this point, does keeping the same risk profile still make sense?  Thinking back 5 or even 10 years ago, where would you have wanted to be from a financial standpoint right now?  How are you stacking up now compared to what you thought in 2012 or 2007?

While it is not uncommon to want “more”, we are simply having constructive conversations about those trade-offs, and the investment risk one is willing to take.  Depending on the stage you are in your life, there should be a shift in one’s mentality when transitioning from growing wealth, to protecting, and then eventually distributing or using those funds.  

Sometimes, the growth of one’s wealth can happen quicker than expected based on diligent savings, investing, and a little bit of luck.  When things accelerate ahead of expectations, it may prove to be an opportune time to reevaluate which stage in life you are at currently, and can you afford to stay the course, or perhaps adjust your priority and get a bit more conservative.

At the end of the day, we believe it is important to make sure your investments are a reflection of your current goals and life stage.  Evaluating your risk profile when things are good, is usually a more effective exercise than when you are making decisions under distress.   
Making decisions and adjustments when things are going well is usually directed by an objective, thoughtful, and proactive exercise.  Making decisions and adjustments when things are not going as well, usually occurs under conditions of worry and is often a reactive behavior.  

Things seem pretty good with portfolios these days.  We’re just saying.

Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Investing involves risk and you may incur a profit or loss regardless of strategy selected.