Making Cents: What Goes Up Will Come Down

US Wealth Napolitano |

By: John P. Napolitano, CFP®, CPA, PFS, MST

Year’s like 2017 make investing look easy many who took risk in 2017 were generally rewarded.  Volatility has remained low for much of the year, and in general, as of this writing the more risky investments appear to be performing at a higher level than your more conservative investments.  Sounds like a text book answer regarding how to invest, but as we all know this paradigm can be turned upside down in a heartbeat by any number of matters out of the control of any investor.

Legal and compliance professionals like to ensure that we all know that past performance is no guarantee of future results.  One thing that past performance does seem to illustrate, however, is that markets will go up and markets will go down.  Markets also seem to illustrate that no one person, entity or method seems to have a lock on capturing all of the upside that any market has to offer while limiting or eliminating the downside. 

As a result, a good starting point for you when it comes to taking a deeper look at your collection of investments is to understand how much risk you are taking in your portfolio. This analysis of risk cuts both ways.  The first, and most commonly considered is the aggressive risk taker who should understand that losses from their investment choices are more likely than they may be for the very conservative investor.  That investor may also expect larger gains than a conservative investor, but should also understand that this will not play out as the theory may suggest in every year.

Conversely, a very conservative investor may be taking no risk of loss in their portfolio because of investing in in guaranteed cash instruments such as a savings account which possess no risk of loss of principal. This doesn’t mean that this particular investor has no risk within their financial life.  Perhaps the earnings rate on their guaranteed investments is very low, maybe even less than the rate of inflation thereby reducing future purchasing power.

This writing isn’t intended to be a warning that markets will be going down – but on the other hand, it is. It’s just that no one really knows when less rewarding times will be upon us. What this writing is about is to help you gain a better understand that just because you saw your 401K plan rise materially this year, that it won’t be like that every year.  Stress test your portfolio to see how it fared during previous market downturns. If your holdings may have suffered by 30 or 40% to the downside under previous market meltdowns – what would make you think that it couldn’t happen again?  It can, and you should assess at this point in your life whether this is the type of volatility that you may be willing to live through again. If you have a long term time horizon and believe in capital markets – the answer may be yes.  But if you are on the doorstep of retirement, and getting concerned about portfolio losses – then maybe your answer is no.


John P. Napolitano CFP®, CPA is CEO of U. S. Wealth Management in Braintree, MA.  Visit JohnPNapolitano on LinkedIn or The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. John Napolitano is a registered principal with and securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through US Financial Advisors, a Registered Investment Advisor. US Financial Advisors and US Wealth Management are separate entities from LPL Financial. He can be reached at 781-849-9200.