Could You Be in the Wrong Investments?
Here is how the process typically goes - An adviser asks the question - What is your risk level on a scale from 1 to 10? You say a 7 (whatever that truly means to you versus the adviser) and they adviser invests accordingly. Regardless of whether or not the market changes its own risk level, you stay invested in a "7" risk category portfolio. The advisory community acts as if there is only one risk level - yours. There are really two risk levels - your risk level and the market's risk level. I think that the question is asked the wrong way. The question concerning risk is asked about your risk level based on the ideal market scenario. Said another way, what is your risk level when the market is going up? With that question it is implied that you are categorizing your risk level on a market that is going up. However, the market doesn't always go up.
Would you have a different answer if the questions was - What is your risk level if there is a high probability of the market going down? The answer might still be a "7." It has been my experience that the answer is a much lower personal risk level. Yet, when the risk level is high for the market, most advisers tell you to hold onto your higher risk-based investments. After all, you don't miss out on more gain. Greed has a funny way of getting in the way.
Successful investors adjust for risk. Today, what are you doing to adjust for risk? I would argue that the stock market is riding on high risk levels and investors need to be cautious. The financial services industry will tell you that a bear market is not in the cards. I would tell you that the probabilities are just as high for a bear market as they are for a continued bull market. Even if this bull market continues, it is on borrowed time. How do you get a risk assessment of your current portfolio?
There are three ways.
- Take our Prudent Money Risk Survey and know your risk level. Take our short questionnaire and we will send you back an analysis that tells you how you wired when it comes to risk. This will give you a more accurate risk level.
- Get a third party opinion. Email your statement or fax it (fax 972-386-0384) and we will give you an assessment
- Have a heart to heart with your financial adviser. The bottom line is get information and take action. The last thing you want is your risk level to be out of sync with the markets risk level!