By John Corron, Wealth Advisor –
Sound financial planning involves constantly checking with clients on changes to their financial circumstances. Are there new major expenses on the horizon? Is income significantly higher than last year? Have any unexpected health issues popped up in your family that stretched the budget?
These are important influences on financial plans. The recent market environment and world events with COVID-19 have brought another important question back to the fore: Is it time to revisit your risk tolerance?
One Size Does Not Fit All
It is common practice to gradually reduce risk in investments over time as savings grow and goal-funding progress is made. For younger savers and investors, the power of compounding is a major benefit and it’s a common philosophy that savers can afford to take on more risk and withstand more volatility early on in life.
In reality, this view is client-specific as individuals vary greatly in their comfort with taking risk. Some younger savers are quite risk-averse. Some older savers are more risk-seeking. The question now, as we have experienced such an unprecedented period of market volatility, is: Should investors re-think their overall risk tolerance preferences?
Finding the Balance
As financial planners we spend a lot of time and energy getting to know clients, projecting the good and bad that may unfold for them in the future and narrowing down the amount of risk they need to take to meet their goals.
At the same time, we try not to stress clients out by suggesting they assume more risk in their portfolios than they are comfortable with. While current risk profiles may have been built on relatively tame historical market volatility assumptions, it may be prudent to revisit investment growth projections to estimate the impact of more frequent stress and volatility in market returns.
Maybe You’re Good, but if You’re Not
It may very well be that your financial plan is built to withstand increased volatility and uncertainty. But if projections indicate it’s time to revisit your risk tolerance, knowing sooner rather than later and making adjustments will be a valuable benefit to your planning moving forward.
It could be that after experiencing this latest cycle of volatile markets, your risk tolerance preferences may have changed. Reach out to your planner to see if you’re still on track to meet your goals and adjust accordingly if not.