Long-term risk management can be challenging for retail investors but too many are not even aware of its importance. Just half of respondents in a Northwestern Mutual survey, for instance, said that they “somewhat or strongly” agree that they need a financial plan that is designed to endure stock market cycles, and only 43 percent of those who already have a retirement plan in place said that it was created to withstand the “ups and downs in the market.”
Another 43 percent of respondents said that they are willing to “give up the potential for higher highs to avoid the risk of lower lows,” perhaps signaling a lack of familiarity with diversification, and only 41 percent similarly reported that their long-term strategy involves a mix of high- and low-risk investments. Rebekah Barsch, vice president of planning at Northwestern Mutual, added that “It is easy to have a short memory when it comes to financial discipline, but long-term risk management is not something to do in starts and stops. You need to plan for what can go right as well as what can go wrong, and it has to be consistent – throughout market and economic cycles, and over the course of a lifetime.”
One thing that can help with risk management, investing, and financial planning in general is regularly consulting with a professional advisor. This has been demonstrated by numerous studies and an earlier Cerulli Associates poll even found that more and more Americans, particularly young adults, are willing to pay for the financial guidance they greatly need. Specifically, 79 percent of respondents between the ages of 30 and 39 said that they would be open to paying for advice, and 73 percent of individuals under the age of 30 reported the same. Both figures are marked increases from prior surveys and well above the level of eagerness to pay for financial expertise reported by older generations.
Sources: Northwestern Mutual, Cerulli Associates
Post author: Charles Couch