My Comment: It’s sometimes helpful to look back a few months, sometimes a few years, to see what I was thinking at the time and to compare what was then with what we see now. For example, as investment advisors we have long embraced the idea of a diversified portfolio to minimize risk. Think Enron; if all your money was invested in that company, as was 100% of many employees’ 401(k) plans, you ended up with zero. Ergo, un-deversified = risk.

Since all of us have now moved toward diversification, the idea of risk has shifted toward volatility. If your investment time horizon is long enough, then short term ups and downs are not really a problem. But if something happens in your life and you need to reach into your stash, and the market has just taken a severe tumble, then you’re looking at a loss. Ergo, volatility = risk.

At Florida Wealth Advisors, we’ve taken major steps to bring risk managment into focus for our clients. A large part of that is because as we age, our long term investment horizon gets much shorter. Most of us are no longer worried about how much money we’ll have fifty years from now. Here’s an article that appeared last November when there were more unexpected ups and downs in the markets than we’ve experienced for the past couple of months.

By David B. Armstrong | November 7, 2011

August 2011—BOOM!

Watching the markets was like watching a waterfall, and it was not until October 4 that the market hit a low.

Volatility. It drives people nuts.

Actually, let me clarify that: Downside volatility drives people nuts. Not many financial advisers field phone calls from clients asking, “What did you do to protect my portfolio from all this volatility?” when the market is rocketing to the upside. Those calls come when the volatility to the downside rears its ugly head.