From the low point of the Great Recession (March 09, 2009) through the end of 2021, the stock market was spectacular. It posted an average annual gain of 18.86%1 per year. This was the best period for stocks since World War II.
How Much Risk Are You Taking?
Take two minutes to answer a few questions to measure how you feel about the tradeoff between risk and return.
The Fear of Missing Out
Those results do not go unnoticed. When gains like this happen (with few interruptions), the "fear of missing out" grows. It becomes easy to think "this time is different." People begin to believe there isn't as much risk in stocks.The longer this trend continues, the stronger the beliefs. People increase the amount they invest in stocks. They want don't want to miss the trend and not participate in the best bull market of our lifetimes.
The problem with stocks, trends continue--sometimes irrationally--until they don't. Without notice, something happens, and the upward trend stops. And sometimes the abrupt halt can shake us to our core
Right now, the current high happened on January 3, 2022. Since then, it has been a harsh dose of reality. We haven't experienced a bear market, yet (we may or may not). But that's not really the point. Stocks will always act like stocks, and it is easy to forget one simple and uncomfortable truth—stocks don't always go up.
We encourage people to reach for returns. The long-term data supports the incredible power of wealth creation equities provide. But you can't do it without understanding what will always happen.
Today, we are in the middle of a correction, and for some parts of the stock market, a full-fledged bear. We check our accounts, and the values are down. For some, the drop will be very uncomfortable. Then you remind yourself things could get worse before they get better.
Fasten Your Seatbelts - We Are Experiencing Turbulence
Investing in any type of asset involves a tradeoff. The more return you try to earn, the more turbulence you'll experience. When the ride gets bumpy, the problems start.
If you've been on a plane, you know bumpy air causes a very uneasy feeling. If the turbulence is bad enough, it will cause some passengers to panic. You can hear the moans and sometimes screams. But it rarely turns into a major problem.
When you get on a plane, you know what is possible. Many things could cause problems for your flight. It could be turbulence, mechanical problems, a bird strike, or unruly passengers. But you make the tradeoff. You can go hundreds of miles in a relatively short period of time knowing you face potential trouble.
When you invest, you also need to know what is possible. The more return you seek, the more troubles you will encounter. More than anything else, those challenges will get in your way of your success.
The passengers who panic when the plane ride gets a little rough, don't run to the door and jump from 30,000 feet. Investors, on the other hand, do.
A Better Understanding of Risk
How can you be a better investor? Start with understanding, not just the tradeoff you make, but how you feel about it.
- Understand how much risk you can handle. Increasing the amount you invest in stocks, will create a bumpier ride to your final destination.
- Understand how much risk you actually take —Many people don't realize how difficult the journey will be when they own more stocks.
The good news, we have a tool to help you answer both of those concerns. To start that process, click here.
One other thing...
When travelers get on a plane, they depend on the experience of the crew to keep them from crashing. It doesn't mean they avoid the other problems. But the pilots and flight attendants do what they can to manage the situations they face.
Our crew aims to keep you from crashing your financial plans. We won't avoid the problems, no-one can. But we've been through both the good and the bad, so we can help you manage the turbulence when it happens.
Here's the best part: A conversation costs you nothing. We can talk about the risks you take, and how much risk you can handle. Then we can discuss how we can help you reach your final destination. Complete the form below, and an advisor near you will touch base with you.