Staying Calm in Hazardous Conditions

There is a common phrase in the world of finance that ‘you can’t eat risk-adjusted returns’. Most people understand investment returns—making or losing money. Few people understand standard deviation, volatility, and risk-adjusted returns.

Investing toward a goal is very similar to a cross country road trip. Each mile moves you closer to your goal, however, not every mile of the journey is the same. Along the way, some stretches of highway will be dreadfully boring while others are intense. Just as your blood pressure rises in city traffic or on treacherous mountain roadways, volatile returns surround your sound, well-planned, financial journey with factors beyond your control.  This can often make your outcome feel less certain.

In a sense, we treat investment returns as what we see in our rearview mirror and standard deviation, or risk, as everything in our headlights. Returns are what we see and risk is what we feel.

Market lows test our resolve and shine a spotlight on our preparation and understanding. While your roadmap to retirement will certainly experience some bumps along the way, here are some suggestions to help you navigate the hazards:

  • Monitor Goals, not Returns – Short term volatility makes a lot of noise and can easily distract you from your course.  It’s important to remember that long-term goals are less sensitive to short-term market volatility. Maintaining a steadfast focus on your goals and reviewing your investment plan on a regular basis will keep your portfolio in sync with your risk preferences and time horizon, and it will help you weather turbulent markets.
  • Prepare a Smooth Ride –It’s important to know what investments are available to you based on the type of account you have. In retirement plans, stable value funds and wealth preservation strategies can be useful tools for managing risk and fear. A modest allocation to these asset classes can really smooth your ride, reducing risk while keeping you invested in the market.
  • Volatility Managed options can also help manage sequence risk, essentially the risk of retiring at the wrong time or during periods of market volatility.  And, even a simple diversified investment into a balanced portfolio of stock and bond investments will spread your risk across multiple baskets.
  • Drive or Ride? – Some prefer to be in the driver’s seat when investing while others choose the help of a skilled professional to guide their investment portfolio.    . Professional investment advice, including managed account solutions and advisory services, is invaluable during a financial crisis.   When you are on a road you’ve not yet traveled and are unsure of which direction to go, you turn to your GPS to determine the most practical route to take.  Your financial path is no different. Think of an advisor as a financial GPS, helping you navigate your roadmap to retirement.
  • Learn from Past Experience – If you have not yet experienced a financial crisis, you are very fortunate. For those with experience, it is clear just how painful it can be. Historical behavior finance data shows that investors make decisions out of fear, buying high and selling low.   Many investors fell into this trap during the Great Recession of 2008. Well-crafted financial goals can help you avoid a similar experience.

Keys to Retirement Success

  1. Chart your course.  While spur of the moment decisions may be fun on an actual roadtrip, it can get you lost quickly during times of market volatility.
  2. Wear your sunglasses. It’s easy to get blindsided by market turmoil, but if shade yourself from the distraction by keeping your head down and staying the course, you will be just fine.
  3. Use a chauffeur. Let a financial professional or managed account solution be your GPS, helping you stay on course during times of marketing volatility.

About Michael Samford view all posts

Michael Samford has been a member of the Unified Trust team since 2007 serving in capacities which include operations, sales and marketing, client service consulting, and advisory services. As Digital Advice Manager, he will guide Unified Trust’s digital advice strategy to deliver a high-quality, innovative, digital advice experience that is memorable and inspirational. Michael’s interests in outcomes coaching and experience engineering are fostered through more than a decade of experience with Unified Trust’s innovative and discretionary approach to financial and retirement planning. He contributes to Unified Trust Company’s fiduciary investment process as a member of the Trust Investment Committee and serves on the firm’s Trust Executive Committee. Prior to Unified Trust, Michael attended Centre College and graduated with a Bachelor of Science in Financial Economics. He currently holds the Qualified Plan Financial Consultant (QPFC) designation offered by the American Society of Pension Professionals and Actuaries (ASPPA) as well as the Accredited Investment Fiduciary (AIF®) credential through Fiduciary 360°.