Now is the time to reassess investment risk. That’s what Anthony Pellegrino and his fellow fiduciary advisors at Goldstone Financial Group, a Chicago-based wealth management firm, are telling their clients in the months since COVID-19 made its American debut.
Since early 2020, we have weathered unprecedented shutdowns, stock market free falls, and overwhelming job loss. Already, experts predict that the U.S. economy will lose at least 2.4 percent of its gross domestic product (GDP) value by the close of 2020 — a toll that counts in the trillions of dollars. On the individual level, that toll has sapped our investment accounts, yanked away employment opportunities, and shuttered our businesses.
Given this, assessing risk now might feel somewhat akin to closing the barn door after the horses are gone. However, advisors at Goldstone Financial Group believe that risk assessment remains a valuable means of protecting one’s retirement accounts from further economic erosion.
“A lot of people have forgotten how much money they can lose in a short period of time in the market,” Anthony Pellegrino, Goldstone Financial Group’s principal fiduciary advisor, explains. “The question you should be asking yourself is: how much risk am I willing to take?”
In financial terms, risk refers to the odds that an investment’s actual gains will diverge from its investor’s expectations. High-risk investors roll the dice, eschewing stability in the hopes of achieving massive financial benefits. They stand to make a considerable profit — or, in the worst case, lose everything in a market downturn.
Low-risk investors take a safer tact. Rather than back a high-potential but uncertain horse, they put their money into stable investments that are unlikely to experience significant declines.
As one writer for Investopedia summarizes: “As investment risks rise, investors expect higher returns to compensate for taking those risks.”
All investors have unique perspectives on risk; however, acceptance tends to hinge on several factors, including the investor’s age, personality, goals, and lifestyle. For example, a rookie professional making their first 401(k) contribution will likely be more tolerant of investment uncertainty than a soon-to-be retiree who has cultivated her retirement accounts for five decades.
Generally speaking, older investors don’t want to risk losing their hard-earned assets, especially given current job market volatility. Over 48 million people have filed for unemployment for the first time since mid-March, and many jobless Americans have needed to face the prospect of shifting into an unexpected retirement.
According to recent reporting from the Wall Street Journal, 60 percent of those leaving the workforce say that they are retired, an increase from the 53 percent reported in January. Analysts found the largest boost to be among workers over 65; however, nearly half of the new retirees were between the ages of 50 and 65 — several years shy of typical retirement age.
“Right now, everyone should be taking some time to rebalance their investment portfolios with their financial goals,” Anthony Pellegrino asserts. “Older investors should make sure that they are on-track to retire on-time — or even a little earlier, if circumstances demand it.”
It is worth noting, too, that forced retirement isn’t a phenomenon new to COVID-19. During consultations at Goldstone Financial Group, Anthony Pellegrino and his fellow fiduciary advisors often counsel their clients on preparing for an unexpected exit from the workforce.
Research backs this priority; according to recent data shared by the Schwartz Center for Economic Policy Analysis at the New School for Social Research, a little over half of the workers who retired between the ages of 55 and 64 did so involuntarily, and were prompted by health concerns, family obligations, layoffs, and business closings.
“Investors need to hope for the best and prepare for the worst,” Anthony Pellegrino explains. “No person should ever go through the trauma of unexpected job loss and realize that they can’t afford the lifestyle they had planned due to too-risky portfolios.”
It’s easy to put risk assessment on the back burner, especially in times like this, when so many other responsibilities seem to take precedence— but aligning your investments with your risk preferences matters.
“Any fiduciary advisor at Goldstone Financial Group will tell you this: take care of your tax-deferred investment accounts, because they will be the biggest assets you have in retirement,” Pellegrino concludes. “If this pandemic teaches us anything, it would be that the unexpected will happen — and you need to be prepared when it does.”