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Should You Lessen Your Risk?

| July 26, 2022

When a global crisis like the pandemic hits the news, it’s hard not to get caught up in the panic. News stories can take on a feverish pace, with headlines churning out by-the-minute updates. What often comes next is a surge in interest in how the crisis will impact investment portfolios. Will the market weather the crisis?

Between March 16 and 20 in 2020, CNN saw its ratings climb 193% compared to the same period the year before, while Fox experienced an 89% increase. Intense anxiety created a cyclical effect, where individuals kept turning to the news for some glimmer of optimism and returned instead with only more anxiety.

When events like this occur, investors can become anxious enough to wonder if they should be lessening the risk in their investment portfolios. Maybe you have had this experience after watching the value of your portfolio tumble in a single day.

The Danger: It’s Different This Time

When something like the pandemic occurs, it can be easy to think that the world has never experienced anything like it. When you pile on supply chain issues, the war in Ukraine and inflation, a recession seems inevitable and it can be hard to trust that your portfolio will recover.

Historically, the market has always recovered from downturns. It is also cyclical, so while pundits and headlines would have you believe that there is some catastrophic event coming in the market, you can ignore them. The market is always cycling and there’s always another bull or bear coming.

Thinking about some of the past events that rocked the market might help put your mind at ease and help you stay the course: In the late 1960s and early 1970s, high interest rates and the Vietnam War created similar circumstances to those being seen in 2022. In the early 2000s, there was the bust and in 2008 the Great Recession caused by the housing bubble bursting.

Even with these events, returns in the United States have consistently been at around 10% based on the S&P 500 since the 1960s, which comes out to more like 6 or 7% when you account for inflation.

The Risk of Reacting

When you see threatening headlines, either about a global crisis or impending doom for the market, resist the urge to lessen your risk in your investment portfolio. Trust that the market will recover and that what you decided in a thoughtful, data-driven strategy session shouldn’t be reversed due to an emotional response to headlines. This is, however, a great time to assess your tolerance to risk and make sure your investment portfolio is best suited for you.

But don’t go it alone. When you are feeling threatened by market volatility, it helps to have an investment advisor that can remind you why your strategy will be effective and why a long-term view of the market and investing is your best approach.

Has the news been tempting you to change course with your investments? Talk with one of our advisors at Heritage Investments and let’s discuss where you’re headed and why the headlines have very little to do with your planning.