Is Your Investment Portfolio Ready for the (Inevitable) Bumpy Ride?

Is Your Investment Portfolio Ready for the (Inevitable) Bumpy Ride?

If any portion of your portfolio is invested in equities, you may have noticed that the past several months have been pretty chaotic, to say the least. Naturally, as an investor, you’re somewhat concerned, worried, or even straight-out scared. Is this the beginning of the end, as has been predicted by some for years? Should you head for the exit? Or maybe you should buy gold or silver.

Like many, you, too, are probably trying to find that proverbial “sweet spot” of investing where none of this back-and-forth will affect you. That absolute portfolio that will not experience any of these drops in value but will only skyrocket quarter after quarter and year after year. The only reason that no one has been able to precisely articulate anything like that is simply because it doesn’t exist. At least not on any stock market in the history of humankind, to date.

                                                                                                                                       
By the way, I’m not trying to be sarcastic or fault you for believing or having such expectations as an investor. Just like you, I would prefer not to see my equity portfolio drop in value for even one day, if that were possible. But the thing is that it’s not realistic, or even possible, based on what history has taught us.

So irrespective of what you hear in the media or from some sales guy or gal who’s just interested in lining his or her pocket, it is a fact of investing life that the stock market goes up and down – and when your portfolio contains equities, it will, by design, follow that pattern.

However, that is not to say that all equity portfolios are equal. Far from it. There is such thing as an efficiently diversified portfolio that is built based on the level of volatility you can stomach. A portfolio that is carefully and specifically crafted to help you cope with movements of the various asset classes, something that is bound to occur, as nothing can prevent it from happening. But when those “ugly” moments happen, an efficient portfolio, by definition, should be rebalanced.

By extension, there are also very poorly diversified portfolios that are just based on what’s “hot” at the moment but without any real planning. Based on my observation in professional practice, it seems that, sadly, this is where the vast majority of folks tend to fall. While in the moment it may sound appealing – exciting, even – that you are somehow going to “beat” the market and avoid its natural down moments, you need to be reminded of the fact that the evidence to date shows that no one has been able to accurately and precisely predict where the stock market will be headed tomorrow. 

So it really comes down to what you believe to be realistic. Investing in a manner that recognizes the unpredictable nature of the stock market or investing like it is possible to predict and beat the market. Your call…

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