Today’s investors seem to have a rather high level of anxiety about where the stock market is headed next. This is understandable. While I do sympathize with this anxiety, it brings to mind an experience I had many years ago. As a young investment professional, I learned an important lesson about managing money for individuals. Risk is not something to avoid. In fact, it’s necessary. But defining the right risks for each individual investor – now that’s the real challenge.

profile picture for David Peckenpaugh
"Today’s investors have more options and education than ever before. But learning doesn’t necessarily create wisdom. I enjoy leading our investment committee to create unique solutions that the guys on TV simply miss."


A quick story

I had just graduated from college, in 1977, with a bachelor’s degree in economics. I interviewed for a job to be a portfolio manager with a prominent financial services firm. The head of the trust department asked me how I might go about investing $1 million. I began to describe why certain common stocks were particularly attractive and then explained the risks and opportunities in bonds in light of that economic environment. After a few minutes he stopped me and made a point that I would never forget.

“Dave, that’s all well and good,” he said. “But you forgot to ask the most important question. What are my goals?”

His words still ring in my ears. Investing with specific goals in mind has always been, and will always be, a sound strategy.


The types of investor anxiety

There are legitimate concerns right now with the US economy and stock market and I don’t want to downplay these. However, these concerns are made particularly poignant by a 24x7x365 media feed on TV, radio and Internet channels that trumpet even the smallest changes. It seems to me that there is so much information, but so little wisdom.

Right now, the types of concerns I hear include:

  • Has the stock market fully recovered from the recession and crash of 2008 or is there more upside?
  • Is the stock market at its peak, and if so, are we facing a downward trend just ahead?
  • Will all of this government intervention, such as the Fed’s actions to keep interest rates so low, hinder future growth in the economy? 
  • Traditional bond and money market accounts no longer yield a living income, so where do I turn?
  • I simply cannot afford to lose again like I did in the financial crisis and the following recession, so how much at risk am I?

Before I answer these questions, I want to address the underlying concern of all of these issues – risk. Risk has gotten a bad rap in my opinion and I want to change that. So here is my position on risk.

Risk is not a bad thing. Risk is normal. Risk is the friend of a long-term investor because it provides the opportunity to earn greater returns over time. Most people forget that they take risks every day, for instance when they walk out their front door and get in their automobiles. People take risks when they board a plane or even go for a jog.

The nature of the risks you take, and the amount of risk you take, should be tied to your specific investment goals and horizon-to-returns. “Calculated risk” is the order of the day in this economy.


What risk is right for your situation?

The right level of risk for your unique situation is a balancing act between your goals and the reasonable projections that can be made based on analytical models.

This balancing act must be taken on by an investment professional who is an expert at what they do and an expert listener. Listening to you, your goals and your unique situation and then really designing a customized portfolio to meet these goals – this is often where investment professionals really struggle.

Before I talk more about how we do this at Whitnell, I want to answer the questions raised above that seem to plague the peace-of-mind of so many investors.

  • No one can predict the future with any accuracy. The rise or fall of the stock market is, therefore, unknowable and an investment strategy must take this into account. 
  • The US economy continues to make positive gains. This should not be discounted. 
  • As for government policy makers, it appears to us that their actions will continue to impact the economy for the foreseeable future. But they have a strong interest in seeing the economy continue to recover.
  • Some people believe they would be better off sticking their money under a mattress. But even this strategy puts them at risk for robbery and the loss of purchasing power from inflation.


So what is the right approach?

First, of course, it depends on your specific goals and objectives. Only you can define these. But an investment professional and a financial planner who are also good listeners can help you do this very effectively.

Second, your goals need to be translated into an investment strategy that has an appropriate level of risk based on your wealth creation goals and horizons to return. Despite what the pundits on TV might be telling you, this is still very possible.

In fact, at Whitnell we have been able to consistently find investments that yield acceptable long-term rates of return, no matter what the economy does. We know there are investments out there right now that are a good fit for certain types of investors.


How we do it

It takes a great deal of research and methodological rigor on our part to find these investments, but they are real. Our philosophy is that there are many things that we cannot know and cannot control. But there are also many things we do know and can control. If we focus our effort on those things we can know and control, we greatly increase the likelihood of realizing our clients’ investment goals.

The investment plans we build for our clients include projections, within certain restrictions, that account for the managed risks we are taking. Should an unexpected event materialize, we are prepared to make adjustments to our clients’ investment portfolios in real time.

We believe it is our job, not our clients’ job, to carefully watch and have the disciplines in place to respond, if necessary, to the economic indicators and policy makers.


Recommended next steps

If you are anxious about the future of the economy and your investment portfolio, I’d like to recommend that you take two important actions:

  • First, make sure your financial advisor deeply understands you, your family and your unique goals and horizons. The more your goals are understood and documented, the greater the likelihood that they can be accomplished.
  • Second, make sure your financial advisor is backed by a team of investment professionals who know how to do the research and analyze and select investment opportunities that are a good fit for your unique situation.

Risk is necessary to achieve your financial goals. But risk doesn’t necessarily need to be accompanied by a high level of anxiety. With the right team of investment professionals behind you and your family, you can spend less time listening to the media pundits and more time on what really matters in life – the ones you love.


Whitnell is not a law firm and does not give legal advice. The information contained herein should not be construed as legal advice or a legal opinion on any specific facts or circumstances. The contents of this article are intended for general information purposes only, and you are urged to consult a lawyer concerning your own situation and any specific legal questions you may have.