There’s always something that could (and will) go wrong
By: John P. Napolitano, CFP®, CPA, PFS, MST, RLP®
It seems as if the past ten years have heightened investors’ jitters to the point where every little rumble in the economy causes some to wonder if the sky will indeed fall and the financial markets drop in value. It is a combination of factors, some firsts in their category, which have heightened the concerns of U. S. investors and helped to increase volatility.
Going back to the year 2000, there was Y2K. Now a distant memory, but the hype around what may have happened to your computers started a sell-off in markets that began three straight years of negative performance numbers for the S&P 500. Of course, 9/11 exacerbated that decline in the fall of 2001. More recently it was the U. S. government shutdown, the fiscal cliff, tax changes, presidential elections, the Greek meltdown, the PIIGS (Portugal, Italy, Ireland, Greece and Spain) difficult fiscal situations, China’s slowdown, the Grexit, the Brexit and now the conundrum of which of our two main candidates is best suited to lead the USA for the next 4 years. The point is, as Rosanne Rosanadana would say on Saturday night live, ‘it’s always something’.
In fact, take this anecdote of lousy world news back to the beginning of financial markets and you’ll agree, there is always something bad happening somewhere around the globe that could easily be spun into the type of news that could begin a market decline. It is going to happen. In fact, markets have historically declined by 5% several times per year with declines of 10% or more occurring nearly every 15 months. Understand that markets do go up and down and that markets today have more volatility in them than in times where information did not flow so freely and quickly. You need to either live with this or decide not to live with this.
Analyzing your portfolio to determine just how much risk you are taking is something that every investor should know. And while every investor knows that past performance is no indicator of future results, it is a reasonable starting place. Knowing how a portfolio like yours has behaved in various market conditions may be helpful if you are fearful or for when markets do indeed decline again. Investors need to set the level of risk in their portfolios to accomplish two objectives.
That first objective is to attempt to earn what you need to earn on your portfolio so that you may maintain your lifestyle and reach your financial goals. The second reason is to understand and accept the level of volatility that you may expect. I am not suggesting that investors adopt a set it and forget it approach to investing, but a greater awareness of where you are and where your true comfort level lies could be a remedy that works better than nighttime sleep medicine.
John P. Napolitano CFP®, CPA is CEO of U. S. Wealth Management in Braintree, MA. Visit JohnPNapolitano on LinkedIn or uswealthnapolitano.com. 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.