Choose volatile investments

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When it comes to investing, high risk and high returns usually go hand in hand. Riskier, more volatile investments — those that tend to bounce up and down in value — will generally earn greater profits over the long haul than investments that slowly, but steadily, gain in value.

If you’re saving well before you actually need the money, you can take advantage of this rule by investing in more volatile assets (typically stocks) and getting a higher return on your money. If you are in your forties, or even fifties, you probably won’t actually need the money for decades, so it won’t matter if your portfolio loses value this year, it’ll likely rebound in the next. That can lead to some pretty heart-palpitating moments as your investments see-saw up and down, but just grit your teeth and remind yourself that it doesn’t matter how much those stocks are worth today, what matters is how much they’ll be worth when you need them.

The fact is, since the first American stock market opened in Philadelphia in 1817, the stock market has always gone up more than it has gone down.  Think about it.  There has never been a time when the stock market went down and just stayed there.  It has always recovered – always.  And here we are, in 2017, after the crash of 1929, after the crash of 1987, after the dot.com crash of 2000-2001, after the crash of 2008, and the stock market has posted a string of new record highs.  Yes, you can lose money in the stock market, but those losses are always only temporary.  After a time, the market recovers and your investment gains return.

We tend to overlook these facts because of something psychologists call “loss aversion.”

Consider again the age-old investing axiom, “The greater the risk, the greater the reward.” When we hear this we are likely to fixate on the risk side of the equation and discount the notion of reward.  This is just human nature.  Numerous studies have demonstrated that, for most of us, experiencing a loss in an investment account hurts twice as much an equivalent gain makes us feel good.

But time is on your side, even if you are approaching retirement.  Longer life expectancies mean that many of us will be retired for 20 years or more.  In order to finance a long retirement we need our investments to grow so that we don’t outlive our money.  So, volatile investments, like small cap and emerging market stock funds, should be included in a well-researched, diversified retirement portfolio.

To learn more about how volatile investment can be an effective part of your long-term investment strategy, contact our office. Our new slate of financial education classes begins this week and we invite you to participate in these interactive educational experiences.

Disclaimer: It is worth noting that the opinions in this commentary are Christian Peterson’s and may occasionally vary somewhat from the opinions of the Winch Financial investment team as a whole. Client recognizes that any opinions or analysis described in this commentary involve the Advisor’s judgment and good faith and do not constitute investment advice. All recommendations or observations are subject to various market, currency, economic, political and business risks. Client recognizes that no party to this alert has made any guarantee, either oral or written, that Client’s investment objectives will be achieved. Advisor shall not be liable for any action performed or omitted to be performed or for any errors of judgment or mistake, except in the case of Advisor’s gross negligence, willful misconduct, or violation of applicable law. Advisor shall not be responsible for any loss incurred by reason of any act or omission of Client, custodians, broker-dealers, or any other third party. Nothing in this commentary shall constitute a waiver or limitation of any rights that Client may have under applicable state or federal law, including without limitation the state and federal securities laws.

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