The Many Faces of Risk

Today the market treated good news as...good news! Strong retail sales figures combined with lower unemployment claims spurred a gain of 180 points for the Dow. Recently good economic news has led to a sell off in the market as investors were concerned that good economic news would encourage the Fed to begin to taper their stimulus programs. Today certainly was a positive change, one we hope continues.

The past five years I have met with thousands of individuals from companies throughout Atlanta through my association with FPFE.  These interactions, as well as those with my clients, have allowed me to see that when discussing risk investors immediately think of the potential for stock market losses.  There is no question that stock market losses are a significant risk, however often investors are so concerned about avoiding potential losses that they expose themselves to other kinds of risks.  Chuck Jaffe, from recently wrote a column that addresses this problem.  Among the risks he highlights are purchasing power risk, interest-rate risk, shortfall risk, timing risk, liquidity risk and societal risk.  

Why is it important to be aware of these risks?  Well the first step to meeting retirement goals is to complete a financial plan, one that can be a road map to meeting your goals. Once the plan is complete, it is then critical to insure that your assets are invested in such a way that you are not overly exposed to any of the risks Mr. Jaffe discusses.

From Mr. Jaffe:

"There is plenty to be gained by “avoiding loss,” and there are strategies for that. But there is nothing an investor can do to avoid risk altogether.  Oh, investment pros use the phrase “risk-free return” to refer to Treasury yields, but they know that there are risks inherent in every strategy. And while stuffing the money between the bed springs will avoid stock-market risk, it simply exposes that money to other risks."

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