Time to read: 2 minutes
Risk management is a common question asked by many financial planning clients. Risk management is needed in all stages of life. When talking about risk, it is important to know that not all risk is created equal.
Let’s use the stock market as an example. The stock market goes up and it goes down. To combat the up and down, most people think of the term diversify. Well, what does that really mean to you? Diversify could mean you own 10 different stocks, and you think you’re diversified. Other people will say “I own a bunch of different companies; I don’t have a lot of risk.” Well, if they’re all in one sector …You still hold a lot of risk because you’re all invested in one sector. This correlates with the phrase that everyone has head – “don’t put all your eggs in one basket.” What it really means is you need to look at your portfolio and you need to look at your goals that you have.
Another example is investing in real estate. If you are good at real estate and you own a lot of real estate, but do you want all your money in properties? Would you be able to pull income solely through your real estate income? There’s a term called non-correlated assets, which means if something goes up it doesn’t mean that another sector is going to go up or down. They have no bearing on each other.
When you or your financial advisor is putting together a diversified portfolio or managing that risk, you should be looking at companies you know you have to have or use regardless of the cost of that product regardless of what’s occurring in the economy. For example, as inflation and expenses continue to go up, and cash flow continues to get tight for the average American, you’re having trouble just paying your bills month to month. If you are desiring to take a vacation, you will probably put that on hold due to the economy, as it is a non-essential. But, if the price of toilet paper goes up, you will still buy that toilet paper. This is considered an essential item. This is how we help demonstrate a recession resistant portfolio to help you mitigate risk. We can help position you in a proper portfolio that will help you achieve your goals regardless of what is happening in the economy. As a reminder, most investments are long term and are positioned to help weather many turbulent moments.
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If you would prefer to listen, please click the YouTube Video below to listen to Tyler Braun, Financial Advisor, talk about investment management.