In our recent semi-annual reviews with clients, it has become almost routine for us to look at portfolio returns together and say, “That looks great!”
Well, last week was not so great. The market corrected, and there was nowhere to hide.
Didn’t you see it coming?
Of course, you didn’t. Nobody saw it coming, aside from the permabears who always think the sky is falling. Last week reminded us all that return always comes with risk.
A fully diversified, professionally managed investment portfolio is built to take a certain measured amount of risk. Notice that I didn’t say “a diversified portfolio eliminates all risk.” Make no mistake, there is a measured amount of risk in every portfolio. That risk manifests itself in long-term return AND in short-term volatility.
You can’t have one without the other.
Sometimes, that lesson is easy to forget — especially when we’ve been fortunate enough to watch the market inch ever higher week after week, and the sky was the limit. The hardest part is that when a correction happens (and it always happens at some point), there is not a lot we can do about it. Short-term volatility is beyond our control. While the Fed does its thing and Putin does him, all we can do is wait it out. And that is harder than it sounds.
Those are my thoughts, have a great Thursday!