Stocks and Market Risk

If the market goes up, and your stocks make a profit, do you still need to worry about stocks and market risk?

Some folks would say, “Awesome!” But others would worry and think, “What goes up must come down.” Worse yet, people with appreciated stocks realize that if they sell their positions in order to lower the risk, a painful capital gains tax will soon snap away a piece of their profits.

Better or worse stocks

There’s no way for anyone to accurately predict the move in the equity markets. In particular, the fickle nature of investors means that prices can swing based on rumors. Are there any companies which you could buy and feel confident they will make you money over time? Sometimes people only buy blue-chip stocks which, they believe, will always do well. Those folks should Google the fate of some formerly blue-chip stocks like WorldCom, Enron, Lehman Brothers, Bear Stearns, Kodak, and more.

What if I already own the stocks?

Although it’s easy to find some examples of major companies that have taken a downturn, it’s much easier to find success stories. Over time, as the economy has improved and technology has made our lives better, trillions of dollars of capital were generated in the market. Many people take a diversified approach to investing and choose to buy funds over individual stocks. When they have inherited stock portfolios or accumulated positions over the years, they spread out the risk by using more diversified positions like mutual funds, exchange traded funds (ETF’s), and money managers. Are there risks there too? Sure, which is why we always stress the importance of reading an investment’s prospectus.

What to do now

If you have a portfolio of stocks or funds and you are worried about the risk, call my office (02) 624-2788 to see if there is a way to improve the account. We specialize in working with people who live in Israel who have U.S. investments.

For further information, read Is it Hard not to Worry about Your Stocks?

Douglas Goldstein, CFP®, is the Director of Profile Investment Service, Ltd., which specializes in helping people who live in Israel with their US dollar assets and American investment and retirement accounts. He helps olim meet their financial goals through asset allocation, financial planning, and using money managers.

Published April 18, 2019.

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