But what about these markets?By Nicholas Hunzinger, February 6, 2019
With all the noise over interest rates, tariffs, national debt, the president’s antics, trade wars, valuations, political unrest, natural disasters, etcetera, when it comes to the market, there appears to be plenty to be afraid of, right?
First, what markets are we talking about?
My initial response begins with questions: What markets are we talking about? The US equity market? The European market? Emerging markets? The real estate market? Commodity market? Fixed income market? Oil market?
The need for proper diversification
I ask these rhetorical questions to drive home a crucial point: Diversification! And proper diversification at that. It wasn’t long ago that “investing for retirement” meant simply picking individual stocks and bonds from recognized U.S. company names. Advances in modern investing have allowed us to reach globally and have granted even the smallest investor access to a diverse array of options. The need for diversification is always there, and always should be. It reduces risk while allowing us to participate in markets we otherwise could not. Yes, it will mute returns when a certain sector is red hot or if our exposure to any given investment class is less than 10%, but it will help to cushion the fall. With proper understanding, diversification may help to put your mind at ease when the talking heads on the news circuit demand the contrary. Correlation, standard deviation, alpha, beta, variance, covariance… proper diversification is a beautiful thing.
Asking yourself the “big picture” questions
We often ask ourselves “But what about these markets!” May I suggest we ask ourselves just two more questions, the two most important questions one can ask: What do you want? Why do you want it?
- Begin by sitting down with a pen and paper to think of your future. What is a full life to you? What do you want to do? What places or people do you want to see? What memories do you want to create? What feelings do you want to leave with others?
- Then start defining your goals. Think of your future along with what you want to achieve and how long you have to achieve those things. These are the questions we ask our clients and ourselves before we build a tailored portfolio to suit those needs.
A level of uncertainty will always exist. It’s innate in the human condition to fear the unknown. Market volatility is real, it is there, and it always be. There are times where it is extreme and times where it is muted. To remain calm, ask yourself the “big picture” questions, plan for the long-term win, and don’t let emotion sideline your retirement.