August 24, 2020

Investment Risk During and After COVID-19

Investment risk is always present, but during COVID-19, the stock market has experienced so much volatility that investors are beginning to wonder where to invest. Investors must consider how investment risk can decline their portfolio’s value due to economic events that impact the entire stock market.
The primary investment risks to a portfolio are equity risk, interest rate risk, and currency risk, which is when investors choose to invest in other countries with stable interest rates and currencies and not their own country's offerings. This risk creates a loss of economic confidence for domestic investors who choose not to invest in their local economy.

Investigate Your Portfolio

Investors should take the time to investigate the U.S. company stocks in their portfolio to determine how they pay out dividends, and if the payout is reliable during this period. Other considerations investors must address to help offset investment risk:
Keeping mostly cash in a portfolio can create other risks such as inflation risk and time-horizon risk.
Taking more market risk during a recession can reap higher returns later when the market recovers.
Examine investing in foreign markets or emerging markets to determine if these investments may provide positive returns if their economies recover ahead of domestic markets.
Modify allocations appropriately, rebalance, and continue to invest using dollar-cost averaging.
Maintain a diversified portfolio, which is the best way to help offset Investment risk.
Longer time horizons help reduce the impact of investment risk; investors should stick to their overall investment objectives and overall portfolio, not individual holdings.
Investors must remember that with more risk comes more reward and that the lowest risk market-related investments are the ones that also produce the lowest yields. Additionally, remember that no investment is without risk.

Work with a Financial Professional

During COVID-19, it is essential to continue to work with your advisor to determine a strategy that fits your risk profile outside of this period. With unemployment high and the economy down, volatility will continue as investment risk for certain types of investments progresses. Remember that letting your money sit idle during this period may mean missed opportunities for your portfolio.

Increased Allocation of Principal-Protected Products

One solution to addressing investment risk, inflation risk, and tax risk are by increasing the allocation of principal-protected products. The benefits of fixed-indexed annuity products address these significant dangers to a retirement portfolio: 
Inflation Risk- Allocation of these products allows asset allocation strategies to address inflation.
Taxes Risk- Leveraging tax-free investment strategies increases investment capital.
Longevity Risk- Utilizing “income for life” features address longevity risk and long-term care risk.
Survivorship Risk- “Death Benefits” provide tax-advantaged mitigant against untimely death.
Market Risk- Principal protection provides a buffer against stock market fluctuations.

For Questions

If you have questions about investment risk or any of these additional risks, now is a great time to meet and review your retirement portfolio to ensure your retirement plan is on track.
Investing regular amounts steadily over time (dollar-cost averaging) may lower your average per-share cost. Periodic investment programs cannot guarantee profit or protect against loss in a declining market. Dollar-cost averaging is a long-term strategy involving continuous investing, regardless of fluctuating price levels, and, as a result, you should consider your financial ability to continue to invest during periods of fluctuating price levels. Guarantees are backed by the financial strength and claims-paying ability of the issuing company. This article is designed to provide general information on the subjects covered.  Pursuant to IRS Circular 230, it is not intended to provide specific legal or tax advice and cannot be used to avoid penalties or to promote, market, or recommend any tax plan or arrangement.  You are encouraged to consult your personal tax advisor or attorney.
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In addition, at Zara Financial Group. We aim to provide an educational resource for those wanting to make intelligent decisions about their finances. Our goal is to help you live retirement the way you intended. Contact us today to schedule an introductory appointment.

The information and opinions expressed herein are obtained from sources believed to be reliable; however, no representation is made as to, and no responsibility or liability is accepted for, the accuracy or completeness of the information. The information is provided as general information and is not intended to be specific financial guidance. The information is subject to change without notice. Before making financial decisions, you should consult a financial, legal or tax professional. Providing personal information may result in contact from an insurance agent. Unauthorized use is prohibited.
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