Earlier this year my wife and I embarked on an adventure with our 3 ½ year old niece and nephew – the Ft Worth Stock Show and Rodeo. As a Christmas gift to them (more so probably to their parents) we spent the day viewing all the livestock, indulging in top-quality fried foods, and cheering on the participants in the afternoon rodeo competition.
Thankfully the kiddos were mesmerized by all the events, and they adamantly voiced a love of two things on the drive home – snacks and bull riding. Bull riding is typically the grand finale of a rodeo as it can be the most dangerous and physically demanding of the rider. The bucking of bulls somewhat resembles the market recently, as the ride for most investors this year has been eerily similar to an eight second bull ride. Yet the bull riders that remain in harmony with the beast and are able to position themselves appropriately for the next twist or turn tend to be the riders that can hold on for the full eight seconds.
Similarly, being positioned to ride out the market woes is imperative on the path to financial success.
This brings to light a big difference between bull riders and financial planning: the choice of which bull to ride. In rodeos the bull is chosen for the rider, leading to a potentially higher risk of failure for the rider depending on the ferociousness of the bull.
In financial planning, the amount of risk taken is in the hands of the investor. What this boils down to is the ability for one to choose the amount of “buck” by diversifying monies across conservative and aggressive asset classes.
The past few trading months have been full of ups and downs, but remember that just because the “market” acts one way does not mandate that your portfolio must follow suit.
The equity market started out the week on a positive note Monday morning with the S&P 500 rising over 1% intra-day, but sentiment fell throughout the afternoon and through Tuesday to end positively just below +0.4% over the two-day period. And the bumpy road for the S&P 500 continued Wednesday and Thursday as investors continued to battle with the multitude of unknown factors brought about by how the uncertainty of public health will impact the economy.
One glaring factor that continues to weigh on sentiment is the amount of jobless claims this year. Yes the rate is declining, but this week still revealed a staggering 2.438 million initial jobless claims. More than 38 million Americans have filed initial jobless claims over the past nine weeks.
Re-opening the US economy should be able to continue the jobless claims decline, but most businesses are not in positions to quickly re-hire all previous employees. The re-opening around the US has been meticulous and highly scrutinized by all sides, furthering speculation of what success looks like with regards to coronavirus cases and business operations.
As of late the markets have seemed to cling to the relief provided by the Federal Reserve and their stance of utilizing all possible tools to guide the economy through recovery.
The duration of recovery is still unclear and the possibility of another market correction remains, but the correlation of those factors to one’s own financial position can be chosen.
The grand finale of the rodeo aims to produce exciting entertainment for spectators by showcasing seasoned riders on the harshest bulls that could ultimately lead to the rider being bucked off before the eight second minimum – a risk the riders are willing to take. But for investors the choice for a smoother ride to success with less room for failure is not only available, it is necessary.
If the aggressiveness and fluctuations of equities does not match the personal risk tolerance you are willing to take, the choice can be made to adjust assets more fitting to your level. Past market periods give us an idea of what to expect during certain future trends, so it is imperative to allocate financial risk to match personal risk tolerance in order to avoid an unforeseen “buck” from your financial plan.
Your trusted financial advisor is a valuable resource to help determine your personal risk level and assist in creating a portfolio to match that tolerance.
We at LGT Financial Advisors place utmost value on leading you to financial well-being, and would be honored for the opportunity to guide you through these turbulent times if you are uncertain about your current plan of action.
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