Risk in Times of Uncertainty

When describing the confluence of this year’s events it has become cliché, if not a major understatement, to describe 2020 as a year of uncertainty. Just some of the obvious contributors: COVID-19 and the politicization of lockdown policies. Add to that social unrest from peaceful protests to raging riots. And then there is the virtual firestorm of politics ahead of the elections, to say nothing of the actual firestorms raging across the Pacific Northwest. So how can we be prepared in times of uncertainty?

Facing the future.

With so much uncertainty it may be hard for individuals, families, or businesses to know how to plan for next month, let alone plan for the distant future. For many, comfort is found by having certainty in the big three of faith, family, and finances.  

Even for the non-religious among us, feeling certain about the future still requires having a degree of faith. We tend to operate from the belief that life will still operate within some band of "normalcy" even if there is some change. That is, we presume that the basics of our governmental, social, and economic norms will at least resemble something similar to today.

Yes, we know that there will be changes in the future, but it is one thing to speculate about taxes and inflation, and it’s another thing entirely to speculate about fundamental shifts like moving from capitalism to socialism. That is a drastic example to make a point.

Perhaps more illustrative is thinking about the fact that the 401(k) has only been around since 1978.  What has today become the predominant individual retirement vehicle has existed for less time than most retirees. You can read a brief history of the 401(k) here, and see how it has evolved pretty significantly over the past 42 years.

Some key takeaways:

• Change is inevitable
• Nobody can predict the future (we can only make educated guesses)
• Even big changes, like moving from pensions to 401(k)s, occur over time

The good news? It is possible to plan and feel prepared for the future even in the face of uncertainty.  Good advice can cut through the chaos and provide some certainty. Especially when the underlying principles are solid regardless of future outcomes. 

For example, one never knows when a natural disaster might happen. But, having an escape plan, emergency kits of food, water, clothing, and cash is still good advice even if disaster never strikes. Just being prepared can bring some peace of mind.

Introducing peace of mind for your financial planning.

This month Strong Valley Wealth & Pension is kicking off a new initiative to help clients not only be more prepared but feel more prepared. Our goal is to help clients gain some additional peace of mind. We believe one way to do that is by reducing the stress of unpredictability in their financial portfolios.

We are implementing an additional tool called Riskalyze. Riskalyze was built on a Nobel-prize winning framework and it helps people better understand risk. This is a scientific and quantitative approach to analyzing risk at both a personal and portfolio level. The tool provides many advantages, but at its simplest level, it can help determine your personal risk score.

What is the value of a risk score?

Understanding risk is important because avoiding too much risk can affect your goals as negatively as taking on too much risk. Going through the Riskalyze assessment and determining your risk score can help with proper planning.

It is important to note that understanding your risk score can be useful on its own. However, a risk score is designed to be just one of the multiple inputs that shape an individual client's wealth plan.

Strong Valley combines risk scores with experience, training, disciplined investment strategies, and financial principles. This combined approach can help clients be more prepared for planned and unplanned market (or life) changes.

A risk score is a great quantitative measure. However, it does not replace the qualitative factors that come from our focus on having in-depth client relationships. The technical data helps us define and better communicate planning and performance. But there is no substitute for measuring the "real life" factors that impact our clients.

How to determine your risk score:

The great news is that Riskalyze can be started on your own online at any time. We can also schedule a time to walk through it together. (You can schedule an appointment here.) Here is some of what you can gain by going through the process:

The benefits:

• Everyone has a risk score – but this way you can know yours and feel more prepared.
• Get better visibility into how your portfolio is performing relative to your risk parameters.
• Work with your advisor to stress-test your portfolio against potential market conditions.
• Make sure you are not taking on or avoiding too much risk to meet your goals.
• Feel more confident that your plan is still on track even in market downturns.

If you are an existing client and have not done so yet, here is the link to start your Riskalyze assessment, and we’re excited to hear your feedback after going through the process.

It's important to go beyond just the data.

We cannot emphasize enough that despite using cutting-edge technology, a risk score does not replace the human aspects of wealth management and retirement planning. This is just one tool that we can use to further refine the strategies and advice we provide. Knowing you is far more important than just knowing your risk score alone.

That said, we think it is such an important tool, that we would highly encourage sharing the link below with your friends and family. There is no obligation to follow-up with a Strong Valley advisor. Of course, we certainly appreciate that most of our referrals come from existing clients.