Yes, I love market risk! The risk associated with the stock markets is completely beyond our control so most investors would not make such a bold statement. Instead, many make it harder than it has to be by timing the market, making sector or individual stock bets, and using alternatives too heavily. Most if not all of these active strategies add additional risk factors to our portfolios. A factor is a multiple by definition meaning it multiplies the risk of a portfolio. More factors means more risk so instead of mitigating market risk these strategies multiply it.
Most investors I come in contact with are more interested in reducing the volatility or risk of their portfolios, not increasing it. Market return by itself over time has proven itself to be an outstanding inflation fighter and real return producer for investors. Why mess with it?
In order to become more comfortable with market risk, we must strip out all of the noise and look at what it represents. When I say “the market” of course I mean the stock market and we all know stocks are ownership positions in companies. Companies are operated by people who are working hard like you and me to create a living.
The key word is “create”. We are creative beings; we come up with stuff and ideas all of the time that never existed before. Nothing else we invest in (except ourselves or our own companies) can make money for us by creating something new! Real estate, gold, timber, and cattle may all be great investments but these commodities only have value based upon the rules of supply and demand. Commodities cannot leverage human creativity into long-term growth in the way the stock market can.
I love market risk because I love investing in the creative potential of people. The risk is worth it compared to all of the other options available for achieving long-term real return.
ROB SCHULZ, CFP®
By Rob Schulz