{"id":1202,"date":"2020-02-25T11:40:00","date_gmt":"2020-02-25T16:40:00","guid":{"rendered":"https:\/\/www.ramsaywealth.com\/blog\/?p=1202"},"modified":"2020-02-11T14:43:26","modified_gmt":"2020-02-11T19:43:26","slug":"the-investment-risk-you-may-not-know-about","status":"publish","type":"post","link":"https:\/\/www.ramsaywealth.com\/blog\/2020\/02\/25\/the-investment-risk-you-may-not-know-about\/","title":{"rendered":"The Investment Risk You May Not Know About"},"content":{"rendered":"\n
<\/div><\/div>\n\n\n\n
\n

What can you do to allay this risk?  <\/em><\/p>\n\n\n\n

Knowledgeable investors are aware that investing in the capital markets presents any number of risks \u2013 interest-rate risk, company risk, and market risk. Risk<\/a> is an inseparable companion to the potential for long-term growth. Some of the investment<\/a> risks we face can be mitigated through diversification<\/a>.1<\/sup><\/p>\n\n\n\n


\nAs an investor, you face another, less-known risk for which the market does not\ncompensate you, nor can it be easily reduced through diversification. Yet, it\nmay be the biggest challenge to the sustainability of your retirement income.<\/p>\n\n\n\n


\nThis risk is called the sequence-of-returns risk.<\/p>\n\n\n\n


The sequence-of-returns risk refers to the uncertainty of the order of returns an investor will receive over an extended period of time. As Milton Friedman once observed, you should \u201cNever try to walk across a river just because it has an average depth of four feet.\u201d2<\/sup><\/p>\n\n\n\n


Sequence of Returns. <\/strong><\/h2>\n\n\n\n

Mr. Friedman\u2019s point was that averages may hide dangerous possibilities. This is especially true with the stock market. You may be comfortable that the market will deliver its historical average return over the long term, but you can never know when you will be receiving the varying positive and negative returns that comprise the average. The order in which you receive these returns can make a big difference.<\/p>\n\n\n\n


For instance, a hypothetical market decline of 30% is not to be unexpected. However, would you rather experience this decline when you have relatively small retirement savings<\/a> or at the moment you are ready to retire \u2013 when your savings may never be more valuable? Without a doubt, the former scenario is preferable, but the timing of that large potential decline is out of your control.<\/p>\n\n\n\n


Timing, Timing, Timing. <\/strong><\/h2>\n\n\n\n

The sequence-of-returns risk is especially problematic while you are in retirement. Down years, in combination with portfolio withdrawals taken to provide retirement income, have the potential to seriously damage the ability of your savings to recover sufficiently, even as the markets fully rebound.

<\/p>\n\n\n\n

As you consider your options, keep in mind that a certain amount of risk is unavoidable. Diversification is helpful, to a degree, but it can also be helpful to have a plan in mind if you face a difficult year ahead. Are you able to delay retirement for a year or more, potentially adding additional years to save as well as allowing the financial environment to recover? Another alternative may be to reconsider, downsize, or delay some of your bigger plans. These alternatives may not be preferable, but you can take comfort in having those plans and ideas in place, should they ever become necessary. <\/p>\n\n\n\n

If you are nearing retirement or already in retirement, it\u2019s time to give serious consideration to the \u201csequence-of-returns risk\u201d and ask questions<\/a> about how you can better manage your portfolio<\/a>. <\/p>\n\n\n\n

This material was prepared by\nMarketingPro, Inc., and does not necessarily represent the views of the\npresenting party, nor their affiliates. This information has been derived from\nsources believed to be accurate. Please note – investing involves risk, and\npast performance is no guarantee of future results. The publisher is not\nengaged in rendering legal, accounting or other professional services. If\nassistance is needed, the reader is advised to engage the services of a\ncompetent professional. This information should not be construed as investment,\ntax or legal advice and may not be relied on for avoiding any Federal tax\npenalty. This is neither a solicitation nor recommendation to purchase or sell\nany investment or insurance product or service, and should not be relied upon\nas such. All indices are unmanaged and are not illustrative of any particular\ninvestment.<\/p>\n\n\n\n

\n

Citations.<\/strong><\/p>\n\n\n\n

1 – https:\/\/www.kiplinger.com\/article\/retirement\/T047-C032-S014-is-your-retirement-income-in-peril-of-this-risk.html [7\/3\/2018]
2 – https:\/\/quotefancy.com\/quote\/868218\/Milton-Friedman-Never-try-to-walk-across-a-river-just-because-it-has-an-average-depth-of [2018]<\/p>\n<\/div><\/div>\n<\/div><\/div>\n\n\n","protected":false},"excerpt":{"rendered":"

What can you do to allay this risk?  Knowledgeable investors are aware that investing in the capital markets presents any number of risks \u2013 interest-rate risk, company risk, and market risk. Risk is an inseparable companion to the potential for … Continue reading →<\/span><\/a><\/p>\n","protected":false},"author":2,"featured_media":1206,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mi_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0},"categories":[118,161,235,179,253,172],"tags":[312,163,318,307,309,317,180,316,183,212,320,319,285,321,186],"yoast_head":"\nThe Investment Risk You May Not Know About | Ramsay Wealth | Blog<\/title>\n<meta name=\"description\" content=\"Investment risk is inevitable, and some can be mitigated through diversification. However, not all can. 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