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March 18, 2019
 

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A look at financial volatility

My family and rollercoasters

I have four children and they are split 50-50 as far as their enjoyment of rollercoasters. 

The thrill of the climb, the shock of the drop, the blood rushing through their veins – two of them enjoy every moment of the experience, but two not so much.  They were all raised in a similar environment, have common parents, same gene pool, etc. but two of them have a stomach for risk and two do not. 

It should also be noted that my oldest child has developmental disabilities and she really has no business being on a rollercoaster in the first place.  (We learned that the hard way, but that’s a story for another day.) 

Is it wrong that two of my children don’t enjoy rollercoasters?  On the flip side, is it wrong that two of them do?  Those seem like silly questions, because it is really not a matter of “right or wrong”.  It is part of their overall proprioception. 

Proprioception, as defined by Wikipedia, is “the sense of the relative position of one's own parts of the body and strength of effort being employed in movement. It is sometimes described as the ‘sixth sense’.”  Our bodies give us a sense of where we are but, for some folks, there is a raised level of discomfort if they are not upright, centered, and stable.

This same concept applies very well to the area of financial volatility, which the stock market has been experiencing a lot lately. 

The stock market could be likened to a rollercoaster and I believe that investors could be compared to members of my family.  Some investors aren’t bothered by the volatility. 

They know they “bought the ticket” for a rollercoaster ride when they chose an aggressive position in their investments, and they are willing to ride out whatever happens. 

Other investors don’t love the uncertainty and emotional upheaval and risk that comes with volatility.  They also “bought a ticket” but didn’t realize that their ride would climb so high, drop so suddenly, bottom out and seem out of control.

They don’t enjoy the experience at all but have a hard time getting off of the ride once it has started. These investors have the option of holding a less aggressive position in their investments, and it can be prudent to get advice about an appropriate level of risk.

However, the third group is most like my oldest daughter.  They shouldn’t be on the ride at all.  Maybe, like her, they are finding that out the hard way.  Other folks with a distaste for risk have gotten sound advice that steered them away from “buying a ticket” in the first place.  A fourth category would compare to myself and my husband. 

We USED TO enjoy rollercoasters, but can’t handle them as well now that we are older.  Something changed for us at about age 40 and we are inclined to feel dizzy and sick to our stomach when we ride.  Investors like us realize that, as they age, their ability to enjoy the risk has changed and they feel financially ‘dizzy’ watching their retirement funds fluctuate so much.  

Different levels of risk tolerance include aggressive (at the risky end) to moderate to conservative (at the low-risk end) with various shades in between.  

Faith Investment Services offers investment solutions in every category of risk and non-risk, but it is critical to gauge risk tolerance first, before making any recommendation.

It is very helpful to you to know your risk tolerance as well, so you have a sense of whether you should hold on and enjoy the ride OR whether you should get off of the ride at the appropriate opportunity and get your thrills somewhere else. 

We at Faith Investment Services offer a free, no-obligation risk tolerance quiz that will help you know what your risk tolerance really is.  It is 7 simple questions and we will gladly give you your score by return email within a day or two.  Go to https://www.myfaithinvestments.com/risk-tolerance-questionnaire and submit the quiz today! 

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