- I am young so I can take more risk. This often equates to more volatile swings in the portfolio.
- What I lost is a small percentage of my pay. I can easily make that back by working harder.
- I am young and have time on my side
- Losses are no big deal, I don't have anyone else to take care of but myself
- Even with the losses I make more than enough to cover my debt
- I'm new to this investing thing...this is just how it is
- I'm young and generally have an optimistic outlook on life
Most older investors with larger portfolios experience somewhat opposing views such as:
- I am older therefore I should be taking less risk with my portfolio. Why is it still moving up and down (less risk does not mean no risk)
- What I lost is a large percentage of my pay. It will take me years to make back the losses.
- I am going to retire at some point, I don't have time on my side any more.
- With a wife, kids, college coming, etc. how am I going to make up that money.
- I've seen this before, it's going to keep going down.
- I've graduated from the school of hard knocks. I generally have a less optimistic view of the future.
The risk we take by increasing our focus on the dollars and less on the percentages as we age can have a detrimental affect on our long-term ability to be successful investors. I'm an advocate for making most portfolios less aggressive as time horizon and tolerance decrease but it should be done with a focus on overall risk, not potential dollar declines. I've too often seen that focusing on dollars and not percents as you get older causes you to be more conservative than might be prudent, adds more stress and dictates more unnecessary portfolio changes.
- Focus on percents not dollars.
- Write down maximum percent change you are comfortable with and stick to it.
- Most product sponsors provide monthly or quarterly statements showing dollar changes, you should look at these as percent changes whenever possible.
- Compare your percentage changes to those over the overall stock market.
- Maintain a healthy emergency account (3 - 6 month minimum) to help ride out market volatility.
- Keep debt to a minimum.
- Contact your trusted Financial Advisor to compare your risk tolerance to your portfolio to ensure they are in alignment.
Following a few simple steps might help you make better long-term portfolio decisions and have the added benefit of a better night's rest!
Spencer Corzine, has been helping clients understand their investments and reach their investing goals for over 20 years. He is a Certified Financial Planner (CFP®), a member of the Paladin Registry and resides in Austin, Texas with his wife and 6 children.
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