Keep calm and carry on. Never has this well used retro phrase seemed more appropriate bearing in mind the political climate around the world. Brandon Zietsman, CEO at PortfolioMetrix recently wrote an excellent paper that summarised some of the particular issues happening in the US and gave his views on what it means for investors.
Markets have proved to be surprisingly resilient over recent months but as we know, past performance is exactly that…history. No-one knows what will happen until it happens. I was brought up with the mantra ‘hope for the best but prepare for the worst’ and this approach has served me well so far. Of course, not everyone is as cautious and there will undoubtedly have been some big winners among the less risk adverse investors over the past year.
With such uncertainty about the future perhaps the most important thing is to understand just how much risk you are prepared to take as an investor…and make sure that is reflected in the type of investment portfolio you buy into.
For financial advisers who are the custodians of their clients’ wealth, it’s even more important to ensure investments align to each client’s risk appetite. While markets are ticking along nicely, it’s easy to keep clients happy about their investments but, should stock markets turn into bears, as they did less than 10 years ago, clients who find their investments heading south are much more likely to take a magnifying glass to the detail and, if risks above their comfort zone have been taken, more often than not it’s the adviser who will be in the direct firing line.
As Brandon highlights in his paper, “Intelligent diversification and a longer-term outlook remains the appropriate strategy in times of extreme uncertainty and it is not a time for gambling on outcomes.”
Indeed.
