By Brian Bloxom, ChFEBCSM
There’s a saying that everybody likes progress but nobody likes change. There’s no denying that change can be difficult—even with the small stuff. We get used to our routines, our favorite take-out spot, a certain hairstyle. If we change things up, what if we don’t like the result?
Many of us think about our finances in the same way. Our funds are doing okay, but in reality, we would like to know our funds will grow to a point that is beyond just “okay.”
To change our financial future for the better, we need to look at diversification. Diversifying your portfolio can help decrease risk while also reaching your future goals with confidence.
Manage Risk
One primary role of diversification is to minimize risk in the stock market. This doesn’t just mean diversifying between growth stocks and value stocks. True diversification requires incorporating a mix of different types of investments—think stocks, bonds, international investments, real estate, etc.
There are varying factors that govern the amount of risk you’re willing to accept. If you are banking on your money being there for you on a certain date, it may align better with your financial plan to utilize a more conservative mix of investment assets with a history of lower volatility. Having a portfolio that is diversified with lower risk will give you confidence.
As we mix and match asset classes and strategies, risk-capacity decisions need to be made no matter the timeline length. By optimizing the way your portfolio is constructed, we seek to minimize risk and maximize returns
Increased Potential for Added Gains
Since its inception in 1926, the average return from the S&P 500 has been 10-11%. Learning a bit of stock market history often puts many at ease when deciding to move money from a savings account into the stock market.
Downturns and recessions are certain realities during one’s lifetime, but those are the same reasons why many wealth managers suggest taking a long-term view on investing. Simply keeping your money in the stock market versus quickly buying and selling is a risk-mitigation strategy of its own.
These downturns also pose new opportunities. Take the global pandemic, for example: 2020 created a unique window of opportunity. Certain high-growth investments performed exceptionally well as the economy reacted to COVID-19, while the brief drop in the market made some value investments available at deeply discounted prices. 2020 provides an example of how investments respond differently to economy-wide shifts, which underscores the importance of diversification as a hedge against both short and long-term losses.
Because of the unpredictability associated with short-term stock market success, diversification and investing according to when you need the money can help you reach your goal with more confidence when compared to putting all your eggs into one basket.
The Ideal Mix
Perfection is notoriously unattainable, so calling an investment mix “ideal” can feel like a loaded term. Everyone has their own unique goals, dreams, timelines, and risk capacity—what’s ideal for one may not be ideal for another. In general, the closer you are to retirement, the more conservative investment mix you might hold. Remember that portfolios can change with time; that’s the beauty of the stock market—you can change your portfolio as your goals evolve.
We’re Here to Help
Change in life is inevitable, but change for the better doesn’t have to be painful. Altering your investment decisions can have major consequences, so it’s wise to meet with a financial advisor who can get to know you before recommending and managing your investments to best align with your unique financial goals.
We at Sentinel Wealth Partners do just that. Taking into account your short-term and long-term goals, your resources, and your current situation, we are committed to guiding you toward success so you can feel confident in your financial future. If you’re looking to partner with an experienced advisor you can trust to put you first, set up a get-acquainted meeting to see if we’re a good fit. Reach out to us today by calling our office at 703-832-0164, sending an email to [email protected], or using our online calendar. We look forward to hearing from you soon!
Diversification and asset allocation strategies do not assure profit or protect against loss. Investing involves risk. Depending on the types of investments, there may be varying degrees of risk. Investors should be prepared to bear loss, including total loss of principal.
About Brian
Brian Bloxom is an Independent Financial Advisor, Chartered Federal Employee Benefits ConsultantSM (ChFEBCSM) and Chartered Retirement Planning Counselor℠, CRPC® professional with 25 years of experience in financial advising. He founded Sentinel Wealth Partners to serve retirees, individuals approaching retirement, and individuals managing complex retirement plans such as company plans or federal benefits plans. His expertise and dedication to helping his clients achieve their goals make him a trusted resource that will help you feel confident in your customized retirement plan. Brian’s mission is to be available to his clients—all the time. He’s here to solve your problems, relieve your anxiety, and give you optimism for retirement. Because ultimately, your retirement should be about well-deserved enjoyment, and not about stress or anxiety. When he’s not working, you can find Brian spending time with his wife, Jessica, and their two sons, Spencer and Preston. He enjoys coaching soccer, serving in his community, golfing, and relaxing at his vacation home at Lake Anna, VA. To learn more about Brian, connect with him on LinkedIn.