Why market volatility is not the biggest risk to your retirement plan

Risks in Wealth Management

Markets have been incredibly volatile to start 2022.

Each day continues to bring unique bounces up and down to a near-historic level intraday for those of you watching. (Tip one – don’t)

Scary right?

Not really. These things happen ALL THE TIME.  

And yet, we continue to see wealth managers inviting clients to equate risk with volatility.

Volatility is the measure of how far the price of an investment moves – is sometimes low, sometimes high, but always a natural part of investing. 

Risk is something very different and comes in a veritable kaleidoscope of forms.

The number one risk is you lose it all. Down to Zero. All your life’s work, savings and investments gone.  Can you imagine how that would feel? Sadly, there are countless examples of investment funds which have crashed and burned, leaving millions of people in despair. If you aren’t already familiar, please google “Neil Woodford”.

Of course, there are countless other investment risks which clients are not aware of, and I am going to touch on some of these now.

Don’t put all your eggs in one basket. This is my investing North Star.  Diversify your risk and hold. Placing family life savings into one asset class is not a strategy for success.

How would you feel being told that you couldn’t access your money when you wanted to? This risk is often referred to as liquidity risk. These challenges usually present themselves during periods of extreme market volatility. By way of example, when COVID hit in March 2020 the largest property funds were ‘gated’ meaning investors could not get access to their money.  When you speak with your current or prospective adviser ask how quickly you can sell and receive funds into your bank account.

Another risk to consider is that you get to your dream retirement date, and you don’t have enough.  

From an investment perspective, this could be that what you were invested in didn’t keep ahead of inflation, reducing your purchasing power and your capacity to retire and maintain the lifestyle you have become accustomed to. Inflation risk truly is the silent killer.

However, the principal reason that people fall foul of these seen and unseen risks is there is no plan in place.

Having a plan or proven process that resides somewhere other than your mind is the key to successful long-term planning/wealth management. Your plan needs to become your financial decision centre; every major financial purchase or decision gets run through the “plan” so you are no longer operating in a vacuum.

Most successful people in sports, business or just life have some type of process they use to achieve their success. Once they achieve a modicum of success in their pursuits, the habits they stuck to go from being a process to their “proven process” as it helps them hit consistent, achievable goals in their pursuit of success.

If you’re ready to book a 15-minute call click here to book straight into my calendar and we can start the conversations around planning for your financial future.

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