We cannot escape risk. We can pretend some do not exist—others we can avoid. But failure comes to those who try to eliminate all risks because risks can provide rewards—evaluating what risks to take and when is where success is found.
In the world of finance, risks are extensive and constantly changing. One of the most important services we provide at Smedley Financial is risk management. With our properly constructed and actively managed portfolios, many financial risks can be mitigated, and others avoided. This requires individual planning and ongoing analysis.
It may feel like you face heightened risks everywhere. Know that we are working hard to help. Here are some of the risks we navigate with you.
Market Risk–Risk of investments falling in value
History teaches that market risk is reduced the longer that properly diversified investments are held. Running from risk is rarely wise. Weeks and sometimes even months of negativity can create fear, but taking the correct level of risk for your situation will help you stick with the plan.
Riding the extreme market ups and downs can be emotionally exhausting and financially painful. Through our active management, we try to allocate your portfolio to areas of the market that we believe have good risk-to-reward potential. Despite the constant changes in the world, we strive to wisely trade your accounts at the forefront of new information.
Inflation Risk–Rising costs of goods and services
Inflation is a concern. Although we do not believe long-term inflation will run as high as it did in 2021 (7%), it will most likely continue higher than we’ve seen in the recent past. Cash, checking/savings, money market, and CDs are most vulnerable when inflation is rising. Stocks can be a good hedge if they rise with inflation. Helping you determine the proper allocation between investments and cash can help you.
Interest-Rate Risk–As rates rise, bond values fall
Interest-rate risk directly affects the bond market. We expected rates to rise with inflation, and so, we reduced interest-rate sensitive bonds in many of our managed portfolios. They have been replaced with investments we believe will be more appropriate. Although market risk is usually lower with bonds than stocks, we believe in maintaining proper balance.
Recency Bias–Placing too much emphasis on recent events
Investors tend to think areas of the market that performed the best yesterday will continue with the highest returns into the future. History shows this is not the case. There are several sectors of the market that constantly rotate as best performing. Although the S&P 500 has dominated recently, many believe investment opportunities internationally are set for a strong run. We continually analyze sectors and explore investment opportunities.
Listen to a deep dive about balancing risks on the Power Up Wealth podcast.
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