AdviceIQ

Advisors: Controlling Risk

You did what you seemed sensible and spent years – and hard-earned money – building a healthy retirement investment account. Then Wall Street nosedives and you’re down $10,000, then $15,000. Your palms sweat, your headache intensifies and you start to snap at everyone in the room that gambling, not saving, can produce losses. What’s going on here – and what can you do about it?

You decide that the investment game means risk, but you won’t stop until you win your money back and then some. You put more in the market. In a blink, you’re down another $25,000.

Are you a poker player or an investor?

This scenario happens every active trading day for many out there who try to make investment decisions alone. The poker world calls the scenario I just described as going on an angry or emotional tilt, when you commence making unusual, sometimes wild and reckless, decisions out of frustration.

The same can hold true in the investment world, where going on tilt might mean a lot of bad moves: investing in companies without doing adequate research, liquidating your investments during a decline or dumping a lot into a cheap yet fragile penny stock with hopes of a quick rebound from a loss.

How can you keep your investing from becoming gambling? For one, most gamblers sit at the table alone; the emotion is all theirs. Investors need to take some of the emotion – and aloneness – out of playing the market.

Hire a financial advisor and make a financial plan to counter some of the risk. Financial advisors can share the research burden with you and come up with a plan to implement investments. (Good advisors, for example, will probably never recommend that you put your money in penny stocks.)

You might find an advisor especially beneficial when your investments fall in value: Most people who lose money during market declines liquidate investments while the market falls (sell low, in other words). Then they re-invest after the market recovers (buy high), making it almost impossible to save steadily for retirement or other goals.

A good advisor can show you historical figures indicating that if you stay the course and don’t sell in a panic, markets always come back up. Third-party analysis can help take emotion out of temporary market declines and help you stick to your financial plan.

The advisor is likely committed to the profession and adheres to the rules, regulations and ethics of that certification. Most financial advisors do follow the rules, and penalties are stiff for those who don’t.

Don’t let your investing turn into gambling. Keep a level head, do your research and don’t go it alone.

Follow AdviceIQ on Twitter at @adviceiq

Trent May is a financial advisor with the May Financial Group in Greenville, Ohio.

AdviceIQ delivers quality personal finance articles by both financial advisors and AdviceIQ editors. It ranks advisors in your area by specialty, including small businesses, doctors and clients of modest means, for example. Those with the biggest number of clients in a given specialty rank the highest. AdviceIQ also vets ranked advisors so only those with pristine regulatory histories can participate. AdviceIQ was launched Jan. 9, 2012, by veteran Wall Street executives, editors and technologists. Right now, investors may see many advisor rankings, although in some areas only a few are ranked. Check back often as thousands of advisors are undergoing AdviceIQ screening. New advisors appear in rankings daily.

 

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