Being in the Market is Risky…So is Being Out - J.E. Wilson Advisors

Being in the Market is Risky…So is Being Out

Yes, investing in the stock market comes complete with risk. There is also a different and deeper form of risk associated with not investing in the market.

Author Dr. William Bernstein in his book Deep Risk, describes shallow risk as “a loss of real capital that recovers relatively quickly” and deep risk as “a permanent loss of real capital.” For the main, investing in the stock market does indeed encounter shallow risk but can actually forestall deep risk.


Borrowing from Tomorrow for Today

We have witnessed educated, mature, and otherwise rational clients turn into a bundle of raw nerves over something happening in the stock market on a single day. Again and again it is reaffirmed that we add the most value by helping clients stick with their plan. If your goals haven’t substantially changed, then why would you want to substantially change your investment strategy because of a bad day, week, month, or year?

Not investing in the stock market (utilizing low cost, well diversified funds), places your goals further out of reach in return for temporary emotional comfort. In essence, you are borrowing from tomorrow for today, which is generally a very poor idea.

A Risk Worth Taking

The reason for investing in the market, and being willing to take some shallow, short term risk is because of the need to offset living cost increases. History tells us that this can best be accomplished with some allocation in companies (stocks) that have provided “premium” (above inflation and fixed income) returns. Assuming 3% inflation, living costs will double in 20 years! We are not as worried about the 1st or 2nd year of retirement, but rather the 21st or 22nd year.

Often, investing decisions are portrayed as being a “Hobson’s Choice”. That is, a choice with only 1 option (this or nothing). In reality, investing decisions are between a variety of alternatives. Your goals should be the driver of those choices. If you need market returns, then you need to be in the market. It is risky, but so is not being in the market.

In many respects, our role as an un-conflicted financial advisor is to help clients make the choices they need to, not what they want to. We help clients achieve long lasting (deep) financial security, something most cannot accomplish without us. Ready for a real conversation?

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