Free Portfolio Stress-Test

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The biggest challenge confronting any investor is balancing risk management and growth potential.

Many investors build their investment and retirement income portfolios with one goal in mind - to make as much money as possible.

In doing so, they often take on far more risk than they intended, without realizing it, then suffer severe losses during bear markets and bull market corrections.

Unexpected Risk

Is The Number One Reason An Investor Abandons His Or Her Investment Plan

And Fails To Achieve His Or Her Goals

Rethinking Your Risk Attitude

Investing is all about your risk capacity and your risk tolerance. 

Risk Capacity measures your "financial ability" to sustain risk.

Risk Tolerance measures your "emotional ability" to handle risk. 

While your investment portfolio may be substantial and you have ample Risk Capacity, your risk tolerance may be such that certain riskier investments - which may provide the best probability of achieving potentially higher long-term returns - simply may not be suitable for you from an emotional perspective - because you cannot tolerate market volatility and/or losses.

Investors often chase performance and buy near the top of bull markets and bear market rallies, after stock prices have risen significantly, when they can no longer stomach missing out on any additional gains (known as "FOMO" or Fear Of Missing Out).

Conversely, investors often sell near the bottom of bear markets and bull market corrections, after stock prices have fallen precipitously, when their risk tolerance is exhausted and they can no longer stomach any additional volatility and/or losses.

Drawdown (Loss) Analysis

A drawdown (loss) analysis highlights the maximum historical loss of an investment from a market top to a market bottom.

A drawdown analysis also helps you to understand the duration of historical losses, which may span several years, before an investment recovered from its maximum historical loss.

Evaluating your risk tolerance toward drawdowns, in terms of both percentages, dollars and duration, is one of the best ways to determine if you will - or if you will not - have the conviction to stick with a plan through good times and bad to achieve your long-term goals.

The bottom line, if you cannot tolerate the historical drawdowns of your investment and retirement income portfolio, then you most likely will not stick with your plan through future bear markets and bull market corrections - and you will not achieve your long-term goals. 

And if you won't stick with the plan, then it does not matter how great the projected portfolio returns look on paper.

For example, it is one thing to be sales pitched that you should invest in the S&P 500 Price Index because it had an annual compound growth rate of 12.08% during the 15 years ending 8/31/2024.

However, the sales pitch takes on a completely different perspective if you are told that you must be financially and emotionally able to risk losing over 50% of your money in pursuit of those potential lofty returns moving forward.

If you hypothetically invested $1,000,000 in the S&P 500 Price Index (you cannot invest directly in an index) entering the bear market that began in October 2007, your investment would have lost 52.56% or ($525,600) and would not have recovered from its losses until 67 months later in March 2013 (assuming you stuck with the investment).

Could you stomach waiting five years and seven months before making any money (and that's without factoring in the impact of inflation)?

A portfolio stress-test goes a long way to helping us, help you, construct an investment and retirement income portfolio that is right for you - and there is a greater likelihood that you will stick with the plan and achieve long-term success!