As I’ve said throughout the years, I believe the markets today are much more complex and volatile than in the past. Over the past two decades, the advent of electronic trading, the rise of 401(k)’s and other employee driven retirement accounts, the ability for consumers to trade on-demand and sensationalized news, have all created an environment where markets are magnified and the potential for swings in stock, bond and commodity prices are seem to occur with greater frequency.
Over the long term, I firmly believe even large swings in the markets are smoothed out and that the overall market trend will continue “up.” However, like we’ve seen over several periods during the past two decades, in the short term it may feel like a roller coaster.
With that said, I’ve been a financial planner now for around 16 years. Many of you have been clients of mine from almost the beginning. I value our relationship and also realize that whether it’s been 6, 10, or 16 years into our relationship, you may be at a different stage in your life. Waiting out these financial markets swings may make you a little more concerned than it did back then!
On discretionary portfolios that I manage for clients, rebalancing and adjusting the mix of investments in your portfolio can help reduce some of the volatility, however there are no guarantees on your investment principal. Fortunately, for those who are particularly concerned about protecting their account values on the downside, there are now some great options. In particular, there are some ways to help guarantee the principal you invest, while still providing the chance for reasonable investment gains. In almost all these cases, the tradeoff is that the strategies that we use to help protect principal will also lower the potential gains in an “up” market.
I’ve always told clients that my goal is to invest according to your unique needs. So, I am offering these strategies for clients who would like to help ensure that they can minimize against the potential damage of negative investment returns over a given time period. Although I am a firm believer that the markets are capitalistic and “work themselves out” over the long term… I certainly understand for clients that are approaching or are in retirement, that having a safety net under your investments may give you the confidence to weather volatile markets in the future.
If you are interested in discussing how to make a concerted effort to invest and, at the same time, to protect the principal of your portfolio, call me and we can discuss. If you have family, friends or colleagues who are concered about protecting their investment principal, please consider referring them to me to discuss, too.
Steven A. Boorstein, CFP®