Stock Market Volatility: Acting vs. ReactingSubmitted by JMB Financial Managers on April 30th, 2018
Market Sentiment Shifts as Treasury Yields Cross 3%
-Wall Street Journal April 26, 2018
It’s in the news, in the headlines, and more than likely, in your portfolio. Stock market volatility, for any investor, can be worrisome. But it doesn't have to be. Something I always like to remind my clients of is that it is better to have a plan of action versus a reaction. This is something we like to call, active risk management.
No matter what the investment, you probably took some kind of risk evaluation survey before investing. It’s important to note that there is some level of risk involved in every investment decision you make, big or small. The real question to ask yourself is, is anything being done to manage your risk?
What is Active Risk Management?
Simply put, active risk management is having a plan. A plan to monitor and minimize your risk. In addition, it is making changes to your portfolio when necessary to reduce your downside exposure whenever appropriate to do so. It is the difference of having a passive portfolio and one that is managed in a way that can reduce the risk investments pose through a defined process with laid out, repeatable, steps.
The Need for Risk Management
Risk management is necessary for a number of reasons. One exceptionally important one, is that it takes the emotions out stock market volatility. When you catch wind of poor performance, it is easy to let your emotions get the best of you and make rash decisions. Active risk management provides you with confidence, knowing your investments are in good hands.
Risk management becomes exceptionally important when you enter retirement. Market volatility combined with regular withdrawals can make market losses significantly harder to correct. Having a financial professional to actively manage your portfolio can better prepare you for market volatility during your retirement years.
Market Downturns are Inevitable
As any investor knows, at some point, the market has to come down. Market downturns are inevitable; from changes in foreign currency to our own recessions, no one is safe from a downturn. The key here is to be prepare for it.
An actively managed portfolio is the first step. It offers downside strategies that may help and helps to reduce losses incurred during these periods of time.
Knowing that your investments are being monitored and managed when things go sideways may be the greatest asset of all. To learn more about why active risk management is necessary, get a copy of our free brochure here.