2 Financial Terms that are currently hot topics for discussion

Risk /Growth:

The main reason that we invest our money is that we want it to grow. If not, we would just leave it alone in cash in the bank. In order to do so, by definition, we usually add some risk.

Market Risk is: “The type of risk that arises due to the movement in prices of financial instruments and can be caused due to movement in stock prices, interest rates, and other factors. This is often accompanied by Volatility.”                           

Very few people like volatility and risk, but if we want to take advantage of markets going up, then we also sometimes have the same markets coming down.

Although the stock market (S&P) has averaged an increase of 9.13% over the past 22 years, there has been some substantial volatility. Seldom do we have this type of growth without risk and volatility. If we only want the ups and not the downs, then we also might forego a lot of upside potential with just safe positions. Nothing wrong with having just safe money though if the results are acceptable to us.

Capitulation:

Definition – To surrender or give up. In financial circles, this term is used to indicate the point in time when investors have decided to give up trying to recapture lost gains. The significance of capitulation lies in its implications. We lock in the losses. Remember, until we sell, we have not gained or lost. In addition, even though some stock or bond values come down, they might still be paying dividends into our portfolio. Selling and getting out of the “Market” is a personal decision often based on the stress that it causes.

Many market professionals consider capitulation to be a sign of a bottom in prices and consequently a time to buy stocks. The problem with capitulation is that it is very difficult to forecast and identify. Sometimes an up day is a mirage, or sometimes it is the end of lows. This past week has been a fine example of dramatic ups and downs with a lot of stress for those watching their investments day by day.

The reality is that volatility in the near term is not going away. Many of the favorite tech stocks during the pandemic have come crashing down. Some folks who wished they had owned Peloton and Shopify and Facebook and Amazon as recently as December, are now glad they didn’t. Just a reminder – the money that we manage for you does not have specific stocks unless personally requested by you. A properly diversified portfolio based on your own risk assessment is what we recommend, even if it experiences near-term volatility to the downside.

To mitigate and monitor risk, we typically suggest that individual stocks are kept in an account separate from your retirement or “future money” to mitigate and monitor risk.

I totally understand that right now is a difficult and emotional time for some. I remind people of the two most important questions to consider when making decisions about “Getting out”

1. Do I have a properly diversified portfolio? If yes, then what happens to some individual stocks every day is not necessarily reflected in my portfolio.
2. When will I need the money in my account? If the answer to this is in 5, 10, or 15 years’ time, then bear that in mind as you watch the daily commentators and volatility on TV

Let’s Talk

What is one of the biggest mistakes that most people make after reading this? They ASSUME that they cannot be helped. We have no idea whether we can help a family or not until we have a personal discussion with them to see what their unique circumstances are and then develop a personalized plan for their family.

Please feel free to contact me at 714-813-1703 at davec@collegeplanningamerica.com if you would like to discuss how we can help you with your family’s plan for Retirement or for College, either in person, over the phone, or on Zoom

About Dave

Dave Coen is a Retirement Income Certified Professional (RICP®) and Financial Advisor with SageView Advisory, and CEO of College Planning America. Along with his retirement financial industry experience, he is a College Planning Specialist. He works closely with individuals and families to provide comprehensive financial planning that addresses all elements of their financial picture. Learn more by connecting with Dave on LinkedIn.