In Individuals, Market Outlook & Strategy

When I meet directly with participants in a 401k plan, I often get the question: “Will, can you just tell me what to invest in?”

Unfortunately, I cannot do that, as I am not their personal financial adviser.  I simply don’t know enough about their personal situation to make a specific recommendation.  Only they can make the decision on what investment fits into their personal investment strategy.

However, I can educate them about different investment strategies other people pursue and inform them which investments in the line-up they could consider to accomplish that goal (e.g., diversification).

But what if you don’t have an investment strategy?

Well, everyone should have a long-term investment strategy.  I believe that one of the most successful investment strategies someone could implement is matching the investment portfolio to his or her personal investment risk tolerance.

How can you do this?  All participants in 401ks for Seattle small businesses where I am the advisor have access to an online survey, which quantifies their investment risk tolerance.  This questionnaire quantifies a person’s ability to tolerate investment volatility.  I can also use this number to explain where the person is relative to other participants.

How does this work in practice?  Let me tell you a true story to illustrate.  I recently spoke to a husband and wife who are both participants in a 401k where I am the adviser.  The husband has a very high investment risk tolerance and wanted to re-allocate his portfolio to investments that he thought would do well over the next 10 years.  He views the recent capital markets downdraft as a buying opportunity, and he understands that this portfolio will likely be very volatile in the near term.

The wife has a very low investment risk tolerance.  Thinking about her 401k account in these uncertain markets was making her anxious, and she wanted to re-allocate her money to a very conservative asset class.

Neither spouse is right or wrong.  Both checked in to make sure they have matched their portfolio to their personal investment strategy.  I educated them on what their options were in the 401k line-up, and they made their own decisions.

I am here for you too.  If you have a question on whether your investment portfolio is match to your investment risk tolerance, please do not hesitate to reach out to me and I can educate you which investments may be a good match for you.  In the long term, you may come out ahead.

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