Can you make too much money?

Can you make too much money?

April 02, 2024

This is a subject that’s been discussed before, but I feel like it’s extremely important to address today. The short answer is yes, absolutely.

Prudent investing revolves around something called risk-adjusted returns. What does that mean? It simply means that we want to maximize the return on our investments while aiming to minimize risk.

A well-constructed investment portfolio should provide an appropriate return for the risk it exposes an investor to. More risk should equal more return. Less risk should equal less return.

So why does this matter today? The stock market is on a tear and has posted amazing returns for the last 6 months. The S&P 500 was at 4,270 on September 28th. It opened on March 28th at 5,248 (Finance, 2023). Those of us that aren’t fully invested in the stock market have missed out on a huge opportunity to increase our portfolio’s value.

Remember, with reward comes risk. As you get closer to the date of needing to use some of your wealth for income or for gifting or whatever the goal is, we have to shift gears from playing offense to playing defense. Short-term changes in the stock market have an outsized effect on your portfolio as you near that magic date. Investment strategies designed to work toward preserving your assets become more important than those that work toward designing for long-term growth.

If you’re getting closer to that time, or if you’re already retired, pay particular attention to the returns in your portfolio. If you’ve made an amazing return in the last 6 months, that could mean you’re taking too much risk. If the market collapses or corrects, you could be in line for a very rude awakening.

On that same note, don’t go chase returns in the market if you’re not already there. Stay disciplined in your strategy. Big returns in the last 6 months don’t equal a guarantee that there will be more big returns in the next 6 months.

This is where the value of a qualified advisor can become immense. Talk to that person about your strategy if you have questions. Is your portfolio set up in a way that’s right for you and your situation. If so, short-term market performance shouldn’t change your strategic decisions. The value of your advisor shouldn’t be measured simply by the return you’ve made. It should be valued in their ability to work with you on a strategic plan and investing appropriately.

The opinions voiced in this material are for general information and are not intended to provide specific advice or recommendations for any individual.

There is no guarantee that a diversified portfolio will enhance returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

The S&P 500 is an unmanaged index which cannot be invested into directly. Unmanaged index returns do no reflect fees, expenses, or sales charges. Index performance is no indicative of the performance of any investment. Past performance is no guarantee of future results.