Muster Drill - Risk Assessment Check In

Muster Drill

During our annual reviews we often review our client’s portfolio and how it might potentially perform during a market downturn.  It is important that our clients have a strong understanding of their portfolio’s potential risk during all different types of market environments.  If a client seems hesitant or nervous about their current allocation and potential risk, we try hard to either educate them about why we believe their current allocation is appropriate given their situation or we work to reduce the risk of their portfolio down to a level that is comfortable for them.

We believe this is the equivalent of a Muster Drill.  If you have ever gone on a cruise you have experienced a Muster Drill, also called a lifeboat drill.  Within the first 24 hours US law requires an exercise to prepare passengers for a safe evacuation if an emergency should arise.  The purpose of the drill is to reduce panic during an actual emergency and to save lives.  The purpose of our Muster Drill is also to reduce panic and to help give our clients the tools to overcome fear and raise their odds of becoming successful long-term investors.  

The 4^th quarter of last year saw a correction of almost 20% in the S&P 500 stock index, which is the biggest market decline since 2011.  Overall our clients did a great job of not panicking and rode out the volatility and were rewarded with a strong snapback to start 2019.

We put a lot of effort into designing portfolios to help our clients reach their long-term goals.  These portfolios are designed with your investment objective, time horizon, income need and risk tolerance in mind.  If you lost sleep or were incredibly nervous during the recent downturn, now is the time to meet with us and have a conversation about your portfolio.  The time to make changes is before the market corrects, not during.  Since many portfolios have recovered most if not all of their losses, now is a good time to check in with us if you would like to talk about changing your allocation to reduce risk in the future.  With reduced risk comes less potential reward, but it is just as important to make sure that your portfolio is allocated in a way that doesn’t create undue stress, because if your portfolio is too aggressive for your risk tolerance there is a potential that you may make harmful decisions at some point in the future during a market sell-off.

Now is the time to reflect on how you felt during the 4^th quarter.  Were you anxious?  Did you lose sleep?  Did you check your portfolio value every day and worry about how much money you were losing?  If you did, we should get together and review your portfolio.  We are always here to answer questions or provide you with a sense of calm during stock market storms.