How do you react to the market cycle?
Reality has a strange way of not always jibing with our expectations. For example, you might imagine that a family camping trip is the ideal vacation for you. But when the reality turns out to be bug bites, burned hot dogs, and bored kids, you realize that you overestimated your enthusiasm for the great outdoors.
Believe it or not, the same thing can happen when investing. Before we recommend investment choices, we asked how much of a temporary drop in your portfolio’s value you would be comfortable with. However, when reality hits, your reaction might be different than you thought.
Three possible reactions
Here are three possible outcomes and how we might adjust your portfolio as a result.
It’s more difficult than you expected
If you become overly anxious when a market dip affects your portfolio value, you may need more conservative investments. Investing shouldn’t cause you stress. We can talk about adjusting your portfolio to better align with your newly discovered tolerance to risk.
You’re getting accustomed to market cycles
After experiencing one or more market cycles, you may feel more comfortable accepting risk and want to add more aggressive investments.
You react as expected
If you handle market downturns just as you thought, and your reaction doesn’t change over time, no portfolio changes are needed.
Your investment time horizon — the number of years until you expect to access your funds — can also influence your reaction to downturns. If you’re 20 or 30 years from retirement, you may be perfectly comfortable with a temporary downturn. But the same market decline closer to retirement might become a source of anxiety.
Talk to an Assante advisor if you ever find yourself reacting differently to the market cycle’s ups and downs. We’ll discuss whether any portfolio adjustments might be advisable.