Risk Hits All at Once (Or at Least That’s How It Feels!)

by | Feb 3, 2022 | Investing, Investor Behavior, Portfolio

Last year, when the market was racing towards all-time highs, we published a piece about what to do if and when the market levels back out. But who reads “doom and gloom” when you’re looking at record-setting gains and numbers you’ve never seen in your portfolio before?

Now that the market is again on shaky ground, you can find that ahead-of-its-time advice here. 

And now is the time when you’ll really need that advice. The market has been whipsawing from red to green, then back to red. Investors are worried. Inflation seems out of control. The S&P 500 hit correction territory…. Headlines say it’s the end of the stock market as we know it. 

But remember, sensational news sells newspapers. Or at least digital subscriptions to them. 

Risk is like an avalanche. It starts out slow… then BOOM!

You may have heard the saying: the market takes the stairs up and the elevator down. It’s a slow climb to financial gains, then they descend quickly. And we all know that descent is coming eventually! Still, many investors are still blindsided and unprepared when the market does head south for winter. 

Many times the big BOOM in your self-managed portfolio is the result of being overexposed. Investors may not realize they’re holding too much of a specific stock, like their company’s stock. Or maybe they’ve overexposed themselves to risk because they only invested in crypto and tech stocks. While you’re flying high on great earnings, it’s hard to step back and consider your risk profile. Until it’s too late. 

 Every asset has risks involved, and that’s okay. Without some risk, there’s no gain! But at-home investors need an expert’s point of view to help them see areas where they’re exposed to a sudden portfolio drop. If everything in your portfolio goes the same direction during a turbulent season like this, it’s time for a rebalance or reallocation of funds. Without proper balance and diversification, it’s not uncommon to see portfolios lose 30% or more. In the case of leveraged crypto-investors, it’s not unusual to lose everything in the span of a few days. But a diversified portfolio helps you weather storms just like this one.  

When the market drops, that’s where Cook Wealth comes in 

The market is like a boxing ring. And we’re your corner coach. On your own, you’re gonna take a few bad hits. You’ll get mad, let emotions take over, and you’ll probably end up KO’ed. But with your corner coach on your side, you’ll still take a few inevitable hits, but we’ll help you stay light on your feet and dodge the biggest blows. Because we know your opponent better than anyone. We’ve studied their form day and night. Together, we’ll make it to the final round. 

It’s a funny analogy, but the meaning stands! Don’t weather the storms alone. 

Here’s a little tough love, because we truly do care about you and your family. On your own, you will get swept up in the headlines. Major market drops are rarely the consequence of companies actually losing any value. Market drops are triggered by “fear events.” Like surprisingly rough inflation numbers or a significant negative event overseas. They have nothing to do with the real value of stocks. But immediately, investors react. Strongly. It’s hard to not let the headlines get to you. 

Big money accounts tend to react instantaneously and can recoup some of their value before the market is greatly impacted. And the mega selloff on their part creates a domino panic effect. Now everybody wants to sell too! But shares are down 10%, and it’s already too late. 

We see this happen to investors all the time: if you’re investing on your own, you’ll sell too soon, pick the wrong assets, and expose yourself to unintended risk. Then you’ll buy stocks back, days or weeks later, when the market is on the upswing. It’s a sell-low and buy-high situation. That’s just the bias in all of us! (We go into detail on the six biggest investment biases here). But with a partner on your side, we’ll get through it together. 

Here’s how we handle market dips

We approach your portfolio from a balanced, informed position. In the middle of the drop, when you’re panicking, we’re focused on getting you to retirement, saving your estate, and protecting your future income. We’re not immune to fear either, because we’re all human! But we have the tools and training to triage the situation in a way that takes the sting out and keeps you protected. 

We have the ability to rebalance your portfolio at every step along the way to keep your risk profile steady, and maybe even capture some benefit from the dip. Historically, the market has always recovered and actually gained new ground after a stumble. So our goal is that you come out on the other side of a drop in a better position than before. And with our team on your side, that’s absolutely possible. 

Keep calm and stand by!

It’s not fun to sit and watch when the market drops. It’s a bit like going to the dentist. Getting your cavities filled is practically a fact of life, and no one really looks forward to it. But you’ve just got to grin and bear it. You’ll be healthier and better off once it’s over.

Remember, if you’re a Cook Wealth client, we’ve planned for this. We saw the next big drop coming. We don’t look forward to it, but we knew it would happen. Plan B is plan A: keep calm and stand by. We’ve got it. Just stay on the path! Together, we’ll get there. 

 

If you have questions about your portfolio or working with the expert advisors here at Cook Wealth, grab a 15-minute spot on our calendar or send us a message below. We look forward to connecting with you!

Are you an existing Cook Wealth client?