Running from risk
Morningstar and others have often reported on the challenges investors face when they run from risk at the wrong time. We all have these impulses, wanting to embrace risk when
things are going well in the market and stocks are reaching new highs.
The opposite is true as well, we want to abandon investments when they are beaten down. Consumers are notorious for repeating the cycle of “buying high and selling low.” This partially explains why the average fund investor’s returns are so much lower than the stated returns of the funds themselves.
Another way that investors run from risk is not just by having lousy timing, but also by being inclined to shy away from higher volatility holdings and toward the more income producing assets as they move through retirement. This kind of running from risk looks
to be problematic in the years ahead. Being over 12 years into a secular bear market, brighter days seem not far off. Similarly, with bond interest rates near their long-term lows, interest rate risk looks to be looming large.
--J. Christopher Boyd, Asset Management Resources, LLC, Hyannis, Mass., 02601, 508-771-8900