KNOW THYSELF: How Much Risk Can You Handle?

OK, you should have received your January statements by now, and probably you don’t like the looks of them compared to December’s. Aren’t we all “long-term” investors until there’s a down month? If you find yourself reaching for the phone to call your broker, maybe it’s time you think long and hard about how you’d handle a major hit to the stock market—say a 30% or more reduction—like we’ve seen thrice already this century.

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Because a down month is a drop in the bucket and might be a good prompt for you to understand your current risk and your tolerance for future risk. In my experience, investors’ risk tolerance is much lower than they realize, and they only realize that after the losses hit their portfolios. Don’t let that be you. I’ve proactively provided clients with years of education on preparing for the worst times in the markets. That’s why my phone rarely rings in times like these.

There’s a reason I focus my time on your personal and financial safety. Bad stuff happens. You need to be ready for it. There isn’t one client I work with whom I haven’t spent the time to get to know, and for them to know me. That’s my job. It’s knowing you that’s my most important work.

Listen, Your Survival Guy doesn’t get worked up about temporary (we hope) declines in the market. I don’t get worked up about a decline in bond prices when I consider their position in a corporation’s capital structure. I like the fact that bondholders get paid before the common stockholders. That gives me peace of mind.

Don’t understand bonds? Well, what I know for a fact is that if you’re stuck in cash for years and years, you’re guaranteed to lose to inflation. I don’t lose sleep predicting what the Fed is going to do with interest rates. Predicting the direction of rates is a sure way to get off track from your long-term investment strategy. Standing there and doing nothing is hard to do—but it’s not impossible.

Action Line: Only you know the amount of exposure to the stock market that’s right for you. I want you to sleep well at night—I’m not a mind reader—but guess what? You are. Know thyself, and you’ll avoid a lot of heartache. If you need help building a portfolio with risk in mind, I would love to talk with you. If you would like to get to know me before we talk on the phone, there’s no better way than signing up for my free monthly Survive & Thrive letter. In the letter each month, I encourage and push you to achieve the personal and financial security goals you’ve set for your family. Click here to subscribe. We’ll get to know each other, and get serious about your future success.

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E.J. Smith - Your Survival Guy

E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zildjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@yoursurvivalguy.com To sign up for my free monthly Survive & Thrive letter, click here.