As investors, it feels like we spend a lot of our time thinking about “worst-case scenarios.” We don’t want our money and our asset values to go down! As such, we’re constantly worried about some potential event that would cause us to lose money.
Planning for a financial downturn is necessary.
You do have to plan for the negative and unexpected things, of course. Which is why it’s important to consult your advisors regularly. This could include financial planners, legal advisors, insurance planners, etc.
A different perspective?
However, are you also planning for the good things that will happen to you and to the economy? Or are you only planning for disaster and missing opportunities to grow your investments?
I’ve advised clients on many occasions – who are holding considerable amounts of cash in their portfolio – that this in fact can create financial risks of its own. These are different types of risk than, say, the risk of the stock markets, and may not be as easily recognized.
The risks of being too conservative
First, and possibly the most obvious risk, is missing opportunities to grow your financial portfolio.
Second, remember that the costs of nearly every product in our world is rising over time. Think of how much a new car or truck costs today compared to a decade ago. Healthcare and education for your children, too.
So, our assets must rise in value to keep our purchasing power in line. If they don’t, we put ourselves at risk of not being able to afford the lives we desire.
Planning for a positive economy is just as important
The moral of the story: planning for an economic downturn is part of any good wealth management plan… but you must also plan for economic prosperity.
A financial advisor can help you balance your portfolio – keeping in mind your current situation and your financial goals – to both prepare for the best and the worst.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. No strategy assures success or protects against loss. Investing involves risk including loss of principal.