By all accounts and barring an 11th hour implosion, 2012 looks set to go down in the win column for stocks, with the Dow (^DJI), S&P 500 (^GSPC) and Nasdaq (^IXIC) all putting up fairly impressive numbers for the year. And yet, getting to those gains has been anything but easy and left many investors in the dust along the way.
Take the Dow for example. To capture its 9% year-to-date gain, investors had to blindly hang on through a 2,000 point price range. Similar swings, on a percentage basis, were also seen for the other equity benchmarks in the course of the year, although the prize at the end of the ride for them has been gains in the mid-teens.
The problem with benchmark and performance chasing is that it often doesn't work. Which is why John Hailer, president and CEO of Natixis Global Asset Management, thinks investors need to get real about risk and focus on creating what he calls "durable portfolios."
"We've seen individual and institutional investors pull away from the market place because of the volatility and the risk," Hailer says in the attached video, explaining the need to build a portfolio that helps you ride through the cycles and sleep better at night.
One of the ways to do that, he says, is to learn about and get comfortable with "alternative investments," instead of being reliant on a simple mix of just stocks and bonds. It's a process he calls ''risk budgeting'' that begins with an honest assessment of need and time horizon, but more so, an evaluation of risk. Once you've determined that, then you can start to build a portfolio that can withstand the volatility.
While losing money is the main fear that investors cite when asked, Hailer says his firm's research has shown 80% of investors say they're afraid they will outlive their retirement assets, yet at the same time nearly 60% are afraid to own stocks. The point being, ''you have to take some risk so you can meet your retirement hurdles," he concludes.