Written by Thomas M. Geier, CPA, CFP®, PFS
The year 2016 has ushered in an unusually turbulent start for stock markets, both here in the US and abroad. I’m sure you have seen the headlines of how this two to three week period decline has been the most negative one in the history of our stock market.
There are many reasons offered to explain the sell off. Plunging oil prices, falling manufacturing orders, and currency woes, are suggested. A slowing growth rate in China and the fact that our Federal Reserve just raised interest rates in December are deliberated. Many financial commentators have also noted that company profits and revenues likely peaked over a year ago.
How should you, as an investor, react to these headlines? First, remember that the media attract attention by appealing to our emotions. So stay calm.
Second, step back and review your investment risk tolerance. It has been my experience that most people tend to err on the side of optimism and are willing to take a bit more risk in a rising market. However, once the market turns, their optimism dissipates and may turn to fear. So, take advantage of the many risk measurement tools to re-evaluate your risk level. The ups and downs of the market can’t be controlled by anyone. But how you position your investments in alignment with your risk tolerance can be.
Next, determine your time horizon for your investments. A young investor in their 30’s might be totally immune to the current market volatility, whereas a retired investor may not have the same outlook. Reaffirm that your investments are goals-based, and are timed to best achieve those goals.
Then, stress test your investment portfolio. There are many powerful tools and diagnostics available to simulate various market environments. The output of these tools can help you analyze the range of probabilities and possibilities. With this data in hand, you can decide if your portfolio is at risk of a scenario that is not acceptable or will do irreparable harm.
Choosing Geier as Your Investment Advisor
At Geier Asset Management, we have all of the tools necessary to assist you. We can discuss your specific goals and help you align your investments to achieve them. We can monitor your progress and help you make and necessary adjustments.
Make sure any actions you take to realign your investment portfolio are driven by objective analysis and smart goal alignment. The results of the above exercises will help you decide whether to stay the course or lighten up. Don’t let emotions unduly influence your investment behavior.
© Geier Asset Management, Inc. January 2016. Thomas M. Geier is a Vice President of Geier Asset Management, Inc., a Registered Investment Advisor. The above blog reflects the opinions of Mr. Geier and not necessarily the firm. Any advice given is general in nature and investors must consider their own individual circumstances. Past performance is no indicator of future performance. The firm makes no warranties or representations of any kind relating to the accuracy or timeliness of the information provided.