On Hugh Hefner, Rick Pitino…and Markets

One look at the headlines this week and it may leave us lamenting the end of a life “well-lived” by an American icon …or shaking our heads in disgust at a major figure in sports (and the end of a different kind of life well-lived).  All this amidst US markets that continue to go UP, UP, UP leaving investors happy, perhaps carefree and with a sense of confidence in their portfolios and savings.

Time

Although looking at the markets in more depth, there is a trend revealed that could elicit a bit of caution, or at least attention.  By this I mean that now — while the markets are delivering gain after gain — is the time to evaluate your portfolio’s asset allocation and your tolerance for risk. These two concepts are fundamental to investing and are even more important after 6+ years of gains in stocks and, more recently, in US Treasury bonds as well.

It does not matter if you are in the early stages of saving in a 401k plan, in the midst of running a business and investing both personally and for the business, or if you are approaching retirement or comfortably retired.  Two concepts, among others, that are critical are:

  • Evaluating your portfolio’s asset allocation (proportion and type of Stocks, Bonds, Cash, Real Estate)
  • Understanding your tolerance for risk.

It may be too late to evaluate and understand these two things after the markets change direction for a period of time (especially on the downside).  You may ask, “how long is a ‘period of time'”?  There is no telling.  Anyone who claims to know the answer to that question is purely guessing, whether educated-guessing or outright guessing.

But the fact is that, historically, markets have not been one-directional. Markets have periods of positive returns… and periods of negative returns.  The periods of time can be fleeting (a matter of days) or drawn-out (months and, yes, even years).  Historically, the timing of a market move is also unpredictable. The reasons associated with these up and down moves are multi-dimensional:  economic/cyclical, interest rate-related, geopolitical (a hot one), political, crisis-related, technical or emotional.  And on and on.  Currently the central banks of the US and the world are entering uncharted waters and what comes next — and when — is uncertain.

Take the time now, after 6+ years of gains, to talk to your financial adviser about the two critical concepts above — and a real financial adviser will have those concepts and more to share (some concepts may be rather boring but worthwhile such as year-end tax planning, maxing out retirement contributions, or comparing your income this year versus last year).

Therefore “a life well-lived” could be more about being proactive in calmer times rather than having to react when emotions and events are running on overdrive.

 

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