Upside vs Downside Risk

IMPORTANT DISCLOSURE INFORMATION

The following presentation by New England Capital Financial Advisors, LLC (“NECFA”) is intended for general information purposes only.  No portion of the presentation serves as the receipt of, or as a substitute for, personalized investment advice from NECFA or any other investment professional of your choosing.  Please see additional important disclosure at the end of this penetration. A copy of NECFA’s current written disclosure Brochure discussing our advisory services and fees is available upon request or at www.newenglandcapital.com.

Upside vs Downside Risk

When the stock market is doing well – like it has been since early 2023 -- many investors tend to fixate on the potential upside of certain investments and give much less thought to the potential losses that can happen.

If you're at or getting close to retirement though, it makes sense to give some serious thought to potential investment losses, your ability to financially handle losses and how long it might take to get back to where you were.

Here's a quick example of why this is important. After an investment drops in value, it's a longer climb to back to where you were – or to break even.

An investment down 10% in a year would then need to increase by 11% to get back to break even.

And that climb back to break-even gets relatively larger after larger losses.

If an investment falls 20% in a year, for example, then you'd need it to climb 25% just to get to break-even. So, while it may be unlikely that the investment would fall 20%, it’s even more unlikely that’ll it’ll then rise by 25%. What that means is it may take multiple years to recover and get back to where you were.

So, does that mean you should never invest in higher risk / higher return securities? Of course not.  But it does make sense to figure this risk into your plan, given the size of the investment relative to your other assets, the chance that you may be forced to sell an investment to help your cash situation and the amount of time you comfortably have to recover from a loss.Give it some thought and let us know what questions you have.

UPIMPORTANT DISCLOSURE INFORMATION

Please remember that past performance is no guarantee of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by New England Capital Financial Advisors, LLC [“NECFA”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from NECFA. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. NECFA is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the NECFA’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request or at www.newenglandcapital.com. Please Note: NECFA does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to NECFA’s web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please Remember: If you are a NECFA client, please contact NECFA, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services.  Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. Please Also Remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian.