Investment Planning for an Uncertain World
Chances are good that if you turn on the prime time news on any given day or pull up your favorite newspaper on your iPad one of the top stories will relate to emerging risks around the world. Whether it’s strife in the Middle East, tensions with Russia, or the ever-shifting balance of power between global powers, this much seems obvious: we live in a time of both unprecedented global complexity and the technological capability to watch events unfold in real time.
Investing in a Time of Geopolitical Risk
When large investment houses start talking about geopolitical risk it’s probably a good idea to take note. Money managers usually spend little time discussing the possibility that foreign policies between countries could lead to destabilizing situations, but at the end of 2014 the chair of RIT Capital Partners (a $3.5 billion fund) issued a statement that geopolitical risk was “…as dangerous as any time we have faced since World War II…”.1
Whether such a dire warning sounds overly pessimistic or not isn’t necessarily the point. What’s important is that it reveals that large money managers are starting to pay a great deal of attention to global risk.
But how to address these risks? Moving 100% into cash or government bonds hasn’t always been the best way to achieve growth throughout that last 100 years or so, a period of time that has seen more than its fair share of global instability. Without moving into purely defensive investments and making overly-conservative plans how can you plan for tomorrow while being mindful of risks today?
Managing Risk - and Reward - for Long Term Success
It’s often said that without risk there is no reward, and when it comes to investment planning this maxim is particularly true. For those trying to achieve long term goals, such as retirement or estate planning, it’s often times risky to try and avoid all risk.
Being overly risk-averse toward stocks can result in low returns that hardly keep up with inflation, which in turn increases the risk of running out of money before you die or failing to fully fund an estate. For most investors cash and bonds alone may not offer the inflation-beating returns needed to replace an income or provide a legacy to the next generation.
Fortunately a smart investment plan, built in a way that takes into account global risks but still seeks long term growth, may help avoid these overly-cautious decision biases.
Is Your Plan Risk – and Reward – Aware?
With all the uncertainty in the news now is a great time to evaluate your investment plan to see if its managing risks in a smart way.
Does your plan:
- Ignore the relationship between reward (investments) and risk management (insurance), or does it address both investments and insurance in a comprehensive way?
- Diversify investments and insurance to help provide multiple sources of return and income?
- React to the latest headlines or take emotion out of the decision-making process?
- Rely too much on one company or country? (Note: If your pension, 401k, and life insurance are all provided by your employer or heavily invested in one country this can be a big risk.)
The best way to help be sure your strategy is well prepared for the risks and rewards of the global economy is to talk with a financial professional today.
After all, wouldn’t it be nice to watch or read the news and not worry about the negative headlines because you know you’ve got the right strategy – and the right financial professional– on your side.
Written by: Advisor Websites
This material was developed and produced by Advisor Websites to provide information on a topic that may be of interest. The opinions expressed in this article are for general information only and are not intended to provide specific investment advice or recommendations for any individual.The information in this material is not intended as tax or legal advice. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. The views expressed may not necessarily reflect those held by PlanMember Securities Corporation (PSEC) or this representative. Material presented is believed to be from a reliable sources and PSEC makes no representation as to it accuracy or completeness.
International investing involves special risks such as currency fluctuation, lower liquidity, political and economic uncertainties, and differences in accounting standards. Risks of foreign investing are generally intensified for investments in emerging markets.
Using diversification or asset allocation as part of your investment strategy neither assures nor guarantees better performance and cannot protect against loss in declining markets.
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