In my article on June 22, I warned of potential stock market risk ahead and suggested that it was time to lower risk and become more defensive. The five experts I quoted were all warning of an outright stock market and bond market collapse. None have backed away from those predictions.
This last month or so has been filled with volatility. The volatility index has soared from 18.61 to a high of 25.98 – an increase of 39%.
It is not uncommon for investors to just put their money in the stock market and leave it alone. This is called “passive investing”. It allows a person to enjoy much of the gains of the market during rising market conditions. However, the downside is rarely warned against. The flip side of those gains is that as equities fall, losses can mount quickly.
A USA Today article written on July 21 of this year points out that risk is right in front of us and that we would be wise to heed the lessons from history. Risks pointed out in this article began to emerge in October. According to Motley Fool, Warren Buffett warned Berkshire Hathaway shareholders in the most recent annual letter that “losses of 50% or more are not only possible, but inevitable in the future.”
I believe there are numerous ways to lower stock market investing risk and also take advantage of stock market gains. I prefer an active management style, but there are also passive approaches. Whatever method you use, be careful where you get your advice and be confident in your approach.
Ben Reppond is CEO and Investment Manager of Reppond Investments. He may be contacted at ben@reppondinvestments.com or (406) 871-3321.
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