Our Thoughts

Ooh How Will I Know… if it’s the Right Time to Change My Investment Strategy?

By: S. Alexis Grason 

As Whitney Houston would say, “Ooh how will I know?” 

Ooh, how will I know (don’t trust your feelings)
How will I know
How will I know (love can be deceiving)
How will I know

Whitney may have been a little more on pitch, but the chart-topper chorus rings true. “How Will I Know” is a feeling everyone can relate to – whether it’s in terms of love, money, or the timing of brownies. 

Risk tolerance is being tested. That is a fancy way of saying your stomach is churning when you think about your investments. My girl scout daughter is learning about the importance of telling the truth and equating lying to that unsettling feeling in the pit of your stomach when you can barely think of anything else. THAT is the feeling…or worse.  

Before an 11-year bull market ended, it was easy to forget what it feels like when you witness your account balances go up and go down with the blink of an eye. That is volatility, and it may be here to stay until we (and the economy) come out on the other side of this pandemic. 

I once read investment risk tolerance is all about stomach lining and time horizon. It may be that simple. The crucial part is that you can stick with your strategy, assuming it was thoughtfully created with purpose and proven data. 

Then the real question becomes, when should you ACTUALLY change your investment strategy?  


Are You Losing Sleep at Night? 

  • If you are losing sleep at night thinking about your money, then your asset allocation may not be a fit. 
  • If you are sleeping just right, goldilocks style, then your allocation is tried and true. It fits. Keep it. 
  • If you are sleeping a little too heavy, then maybe revisit because you can handle more ups and downs and still be ok. Remember, risk and reward are relatedso, if you can tolerate the market risk, then the higher, long-term return may be worth it. 

securityIf your asset allocation is not a fit, contact your trusted advisor to have an honest conversation about what you are experiencing. It could be all about your investments and the allocation, or perhaps there is something deeper to address. Contingency plans and ensuring you have emergency funds in place (and backup options for the emergency funds), so, you can take refuge in those solutions vs. worrying about the investments. The investments are intended to be long-termaddress your short-term worries, and sometimes the long-term stuff is easier to stomach. 


Did a Major Life Event Happen?

  • You had a baby 
  • Got married 
  • Hit a milestone birthday 
  • Received an inheritance 
  • Got divorced 
  • Closing in on retirement 
  • Someone close to you passed away 
  • Sold a business 
  • Or more than one of these happened at the same time! 

All these events count as life transitions, and now things are shaken up. This “life happened” moment may or may not have been expected, and it doesn’t matter as all these events may warrant revisiting the asset allocation conversation. 

Asset allocation needs to be viewed as a permanent posture toward investing. That is why deciding to make a change is not like flipping a switch. It is having a conversation to see what variables – income, lump sums, time horizon, stomach lining, etc. – have changed and what emotions and biases could be affecting the situation. A professional as a partner can navigate these situations with you and make sure you are addressing all the appropriate decisions and answering all the necessary questions, which is one of the main benefits of partnering with a financial planner.

Reality Check

The current environment presents you with an opportunity to increase your potential for a higher return, OR your lofty goals and limited resources make a higher return necessary to achieve the desired outcome. 

This is a tricky one. Since the aforementioned asset allocation is so-called permanent or at least NOT transient, capturing opportunities for higher returns is a risky business. Again, having an open conversation with your advisor will help uncover if you can afford to lose the resources you want to direct towards more speculative investments. Remember, risk and return are related, so it can easily go the other way, which may not be in your favor. Don’t gamble with those serious dollars. 

Lastly, if your goals are ambitious and your resources will not cover with a more moderate rate of return assumption, proper education on volatility and return probabilities may create the understanding to increase your equity exposure. It is essential to recognize the risks here and have a backup plan or, at least, revisit your goal tracking systematically to see if course corrections and/or goal modifications are necessary. 

Oh, how will I know, how will I know
How will I know
Hey, how will I know

It is never as easy as it seems, and your head and stomach may tell you two different stories. Listen to both, recognize and appropriately frame the external influences, and seek trusted counsel before making investment decisions when the stakes are high.