Does Your Risk Tolerance Match Your Investment Plan?

Jan 10th, 2017 | By | Category: Commentary

By Jennifer Landon
Contributor

Jennifer Landon

Jennifer Landon

The recent presidential outcome caused a mini-panic on Wall Street the night of the election as investors had factored in a Clinton victory and made their investments accordingly. In after-hours trading, the markets were in a free-fall initially, then rebalanced by the opening bell the next morning. Billions of dollars had traded hands while most of us slept.

That can be a scary thought to many of us—those levels of extreme volatility that can occur when the markets begin to swing in one direction or another. When I think of the impact that elections or other outside forces can have on the assets of regular investors out there, I have to ask an important question that I hope everyone is asking themselves: Does my risk tolerance match the plan I have for my investments and my retirement?

We’re in uncharted territory with President-elect Trump. For the first time in our nation’s history we have a businessman at the helm, a businessman who is known for brokering deals. Already we’ve seen him make an unprecedented move for a President-elect by keeping Carrier Corp. jobs in Indiana instead of exporting them to Mexico. With Trump’s track record, surely there will be other deals over the next four years. Will any of them make a difference in the bottom line for us in Idaho?

We would need a crystal ball to know that answer but what we do have is historical market data related to elections. Stock historian Yale Hirsch developed the Presidential Election Cycle Theory, stating that U.S. stock markets are weakest in the year following a presidential election. Over the decades we have experienced tremendous losses and gains. In FDR’s first year in office, the market’s dropped 27.3%. In George H.W. Bush’s first year, the market was up 25.2%.

Those are massive gains or losses that can be had for investors. A Trump administration could have an even bigger impact with his willingness to comment on specific industries or companies. On December 6, he tweeted that “Boeing is building a brand new 747 Air Force One for future presidents, but costs are out of control, more than $4 billion. Cancel order!”

In the aftermath of just 137 characters, the Boeing stock had an initial drop of nearly 1.5%. Trump could just as easily tweet or comment positively about a company or sector and cause a gain. Trump is by no means the only factor in the market’s current volatility. The market swings long preceded his decision to run for office and will likely continue long after he leaves office.

However, knowing that volatility is a constant, you have to ask yourself: Where are you in your cycle as an investor? Are you in a growth stage and willing to ride the rollercoaster to potentially great gains or losses, figuring you have time on your side to replenish later what you could potentially lose now?

Or are you in or near retirement? We saw a catastrophic fallout from the 2008 financial crisis as millions of Americans suffered. Many of them lost much of their nest eggs overnight, forcing them to postpone their retirement. Some even came out of retirement in efforts to rebuild their assets.

Risk has it rewards, but is the risk right for you? So far, since the election results, the stock market has soared, going up, up, up, breaking records, but if we know anything about a bull market, eventually a bear steps in.

As you monitor your investments and your retirement plan, take the time to talk with a financial professional and evaluate your short-term, and more importantly, your long-term goals. You want to make sure the plan you have in place is one that matches your risk tolerance and not the market swings of the day. Your future depends on it.

About Jennifer Landon, Southeast Idaho’s Financial Educator

Jennifer Landon, founder and president of Journey Financial Services, is an accomplished advisor, educator and presenter on financial topics. Landon has spent the last decade advising Idaho Falls residents on the wealth and retirement planning strategies needed to help them achieve peace of mind on their retirement journey. She is an Investment Advisor Representative and a licensed life and health insurance professional in the state of Idaho. Landon is a member of Ed Slott’s Master Elite IRA Advisor Group, the National Ethics Association (NEA) and the Better Business Bureau. For more information about Jennifer Landon and Journey Financial Services, please call (208) 552-9169 or visit www.JourneyRetirement.com.

Jennifer Landon is an Investment Advisor Representative with Allegis Investment Advisors LLC, an SEC Registered Investment Advisor. 591 Park Avenue ste.101 Idaho Falls, ID 83402.

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