Would it be okay if your investment portfolio went down $400,000?
This was a conversation we recently had with a couple we have just come to know. The reason? We stress tested their current investments against the Financial Crisis of 2008 and 2009, and this was the result.
Are you okay with a 3% annual return and running out of money before you are 70?
If I die before I am 70 then yes!
This was yet another recent conversation as a result of stress testing her investments.
We all want the upside with no downside. And… we all want to have our cake and eat it too. The reality is this: you deserve the return you get. In other words, whatever risk you take will warrant your return over the long run.
We have always taken a slightly different approach to risk and perhaps it is because we do life planning, not just financial planning. Your life, current situation, future and goals, and family dynamics should determine your risk level. The problem is that our emotions can’t always stomach what this level of risk needs to be or greed gets the best of us. Wouldn’t it be great to know what to expect with your investments if a major recession occurred? And because recessions are inevitable, wouldn’t it be great to have a plan in place for when it happens? Better yet, wouldn’t it be great to know that your risk is targeted just right to meet your needs and goals?