Armageddon … is it time to get out of the stock market?

If you’ve been watching the news recently, you may be like some people and think the world is coming to an end. Hurricanes, earthquakes, what seems to be an increasingly divided nation, and tensions between North Korea and the United States. . . it’s hard not to feel sometimes like we are on the brink of Armageddon.

So it’s not surprising that one of the first questions I’m often asked is, “Is now even a good time to invest? Or should I hide all my money under my mattress?”

Here’s the truth.

I have no idea.

If you asked me personally last November, I would have said the same thing, (though in my gut I thought the market at that time was on its way down. I would have been wrong).

The good news is that I don’t change my clients’ or my own investment strategy because of a “gut” feeling. No advisor should.

Instead, even if you’ve heard it before, it bears repeating. Markets are unpredictable, and you CANNOT time the market.

Rather, your investment strategy should depend on two main things:

1) YOUR GOALS– what is the money to be used for and when? Do you need it in the next few months, for example, for a home renovation or to pay off a debt? Or are you investing for a long-term goal, like retirement or college education?

2) YOUR RISK TOLERANCE – how sensitive are you to market ups and downs? Would you be inclined to pull out your money during a bear market, and actually act on it?

> I have one client who’s invested primarily in bonds/bond funds because she is so risk averse. Although we tweaked her allocation slightly to include more stocks and international holdings (because she is so young and I worried about purchasing power risk and her ability to meet her long-term goals as a result), her risk tolerance was such that it made sense to be invested in the most conservative allocation that would still allow her to reach her goals.

> I have another client who has 90% of his portfolio invested in diversified stocks funds while only 10% in bonds, and nearly 100% of his retirement funds in stocks funds.

Different clients. Different goals. Different risk tolerances.

However, what they do have in common is that they have a clear strategy in place that we re-visit periodically. While it may change, it will be because their goals and risk may change, not due to a gut feeling about the direction of the markets.

And certainly not on a theory of Armageddon.

That being said, any risk tolerance assessment should include a series of questions around how you think you might react to a severe market correction, so that your overall risk tolerance score builds in the “Armageddon” scenarios and your expected investment behavior.

And remember too, that even if you have a solid investment strategy in place, that doesn’t mean “set it and forget it.” Make sure you also take the time to rebalance your portfolio periodically as it shifts due to market movement and to make sure it’s still appropriate since your goals and stomach for risk can also change over time.

If you need a second opinion on your investment strategy, schedule a consultation at jennifer@financialwealthbeing.