The past few months is a great example of what the Wall Street Roller Coaster feels like. From a high of
over 2900 for the S & P 500 in Oct 2018; to a low of under 2400 in December 2018 and now back to
2775 as of last Friday. I am sure we can all agree this has not been a fun ride.
This kind of volatility can turn good days into bad. It is easy to understand why so many investors want
to get out of the market. Why so many folks who are close to retirement or in retirement want nothing
to do with the stock market.
But is this the right choice or is it emotional.
Let me start by making a very general statement. No one should have all their money in the stock
market. But most people should have some of their money invested in the stock market.
Again, let me be very clear. I believe that as a general rule you should NOT have all your money in
equities or the stock market. But many of us should at least consider having some of our money in
equities or the stock market. Even though we know that the Wall Street Rollercoaster ride we just
experienced will likely happen again sometime in the future.
The simple reason for this is because, over time an investment in the stock market has the potential to
help the average investor stay ahead of inflation and increase their wealth.
So how do you decide, how do you determine what is the right amount of money to put in the market or
put at risk versus keeps safe and off the Wall Street Roller Coaster.
There are some financial advertisers that say you should have all your money out of the market.
Perhaps in annuities, cash, CDs or bonds. There are some financial advertisers that say you should have
most or all your money in the market. Without ever knowing anything about who you are or what you
are trying to accomplish with your money.
We believe that a good way to figure all this out is through a 3 step proprietary risk assessment process.
Step 1: Determine how much risk you are taking right
• Regardless of what type of investor you think you are, your current investment strategy will tell
you a lot about your appetite for risk and your view of the stock market rollercoaster. Some
families I have met keep almost all their money in cash, CDs and bond funds, but tell me they
are moderate investors and want to invest in the stock market but just can’t pull the trigger.
Some of the families I meet have almost all their money in mutual funds but tell me that they
are scared of the market and want to avoid losing too much of your hard earned nest egg.
Step 2: What is your emotional risk tolerance?
• In other words, what do you consider a decimating loss? How much of a paper loss can you
really tolerate. It is an eye opening experience for most when I show them how much risk they
are taking and what their emotional risk tolerance is. In the majority of cases, most investors
are taking a lot more risk than they can stomach.
Step 3: How much risk do you need to take?
• What I mean by this is: based on your current financial situation, your current savings rate, how
old your are, when will you retire and how much money do you need a month to maintain your
current lifestyle, how much do you need to earn on your investments, how much will you owe in
taxes on your IRA or 401(k) money and much much more. From this we determine if you need
to earn 1% or 10%. Then we take that number and find an strategy that will aim to let you take
the minimum amount of risk to achieve your goals.
Once you have all this information you can decide how much of your money should be placed into the
market, what type of investment strategies you should use and how to best achieve your personal and
There is obviously a lot more to planning for retirement than just going through this risk exercise but it is
a good start. So if you are unsure whether you have to much or not enough money invested in the
market. If you are unsure whether you have enough money to retire. If you unsure if you money will
last for the rest of your life. Give us a call or send us an email.
• Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that the future
performance of any specific investment, investment strategy (including the investments and/or investment strategies recommended
by the adviser), will be profitable or equal to past performance levels.
• This material is intended to be educational in nature, and not as a recommendation of any particular strategy, approach, product or
concept for any particular advisor or client. These materials are not intended as any form of substitute for individualized investment
advice. The discussion is general in nature, and therefore not intended to recommend or endorse any asset class, security, or
technical aspect of any security for the purpose of allowing a reader to use the approach on their own. Before participating in any
investment program or making any investment, clients as well as all other readers are encouraged to consult with their own
professional advisers, including investment advisers and tax advisors. TFG can assist in determining a suitable investment approach
for a given individual, which may or may not closely resemble the strategies outlined herein.
• The S&P 500 is an unmanaged index used as a general measure of market performance. You cannot invest directly in an index.
Accordingly, performance results for investment indexes do not reflect the deduction of transaction and/or custodial charges or the
deduction of an investment-management fee, the incurrence of which would have the effect of decreasing historical performance