It鈥檚 easy to be confident in your investment approach when the markets are primarily going up.
But what happens when you add a little volatility to the mix?
鈥淢arkets have gone up by more than 250 per cent since the last recession, with very little volatility until recently. This is not normal 鈥� people have forgotten what normal volatility feels like,鈥� says , a 琉璃神社-based financial advisor with Raymond James. 鈥淧eople have become complacent in their risk tolerance assessments.鈥�
The problem with emotion-based decision-making
Complacency can lead to emotional decision-making when volatility does happen, and that鈥檚 when investors make the biggest mistakes.
Investors feel most at ease with investing when news is good, usually at the top of the market, and feel the most fear about investing when news is bad, usually at the bottom of the market. Giving in to these fears and allowing them to control investment decision-making can result in very poor investment performance.
鈥淢oney is emotional, so it鈥檚 natural, as humans, to allow emotions into the equation, but approaching investment decisions from a place of fear or greed is how we can make bad decisions,鈥� Wilson says.
High risk doesn鈥檛 always equate to high returns, and those who get caught up in fads or buying the 鈥渟ure thing,鈥� can put their investment portfolios at risk. 鈥淚 know of investors who have lost everything because they heard about the stock of a company that鈥檚 鈥榞uaranteed鈥� to go up,鈥� Wilson says.
Is your retirement plan too risky?
For those nearing retirement, this long period of growth 鈥� and resulting complacency 鈥� may have led to investment plans that carry considerable risk.
鈥淚 believe that many investors, especially those close to retirement, have too much risk in their investment portfolios, and that鈥檚 happened because the markets have performed so well over the past decade,鈥� Wilson reflects.
Assessing someone鈥檚 risk tolerance 鈥� and ensuring it鈥檚 reflected in their investment strategies 鈥� is difficult when markets are only going up, especially when an advisor hasn鈥檛 been through a full market cycle themselves, or experienced a recession.
鈥淭his is why you should work with a skilled, trusted advisor who has a significant amount of experience and education, and preferably one who works for an independent wealth management firm without targets for selling proprietary investment products. The clients鈥� best interests should always be the advisor鈥檚 No. 1 consideration.鈥�
The core values of Raymond James and their advisors are conservatism, client-first, and integrity. This is reflected in the level of service their client鈥檚 experience.
鈥淢y team and I have a process which focuses on prudent risk management through financial planning. This is the blueprint for our investment strategy decisions. During times of heightened market volatility, our clients have a lot of peace of mind in our investment strategy and their financial well-being.鈥�
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Tanya Wilson is a financial advisor with Raymond James Ltd. Information provided is not a solicitation and although obtained from sources considered reliable, is not guaranteed. The view and opinions contained in the article are those of the author, not Raymond James Ltd. Raymond James Ltd. member of Canadian Investor Protection Fund.
