Market volatility—whether driven by economic downturns, stock market corrections, or geopolitical events—can be deeply unsettling, particularly when you see your portfolio losing value. This worry is even greater if you’re approaching retirement or relying on your investments for income.

Are there ways to prepare for market fluctuations and reduce the impact of these ups and downs? The answer lies in the art of risk management.

At Trinity Wealth Advisors, we bring the power of a team of financial professionals with over 100 years of combined experience. As a wealth management firm in St. Louis, MO, each of our partners is a CERTIFIED FINANCIAL PLANNER® professional specializing in investment strategies, life and wealth planning, and/or charitable giving.

In this blog, we’ll discuss key components and actionable strategies for effective risk management to help safeguard your wealth during times of market uncertainty.

Key Components of Risk Management

Risk management in investing is the process of identifying, assessing, and addressing potential financial risks to protect your portfolio. It is especially important during volatile markets, as risk management improves the likelihood of your long-term financial goals staying on track.

Assessing Risk Tolerance

It’s vital to begin by understanding your current personal and financial comfort level with investment risk. This involves asking questions like:

• How would you feel if your portfolio lost 10%, 20%, or more in value?

• How long could you wait for the market to recover without drawing on your investments?

• Do you prefer steady, lower-risk growth, or are you comfortable with higher risks for the potential of greater returns?

• How might upcoming financial needs, like buying a home or paying for education, impact your risk capacity?

Life changes, such as nearing retirement or experiencing a major financial event, often call for a reassessment of your risk tolerance. Trinity’s financial advisors in St. Louis can walk you through a detailed risk assessment to help you understand your comfort level and if it reflects on your current portfolio holdings.

Building a Balanced Portfolio

Creating a diversified portfolio is another key strategy for mitigating risk. Diversification spreads investments across various asset classes and investment approaches, reducing the impact of any single asset or market segment. A balanced portfolio typically includes a mix of:

• Stocks: Large-cap, mid-cap, small-cap, domestic, and international equities provide exposure to different sectors and economies.

• Bonds: Corporate, government, municipal, and short-, mid-, or long-term bonds offer stability and income generation.

• Cash: Money market funds or other liquid assets provide immediate access to funds during emergencies.

• Alternatives: Real estate, commodities, and other non-traditional investments add another layer of diversification.

• Investment styles: Growth investing targets companies with above-average growth potential, while value investing focuses on undervalued companies trading below their intrinsic worth.

Blending these asset classes thoughtfully—based on your risk tolerance and financial objectives—can assist in reducing volatility and position your investments for steady, long-term growth.

Setting Stop-Losses and Limits

Stop-loss orders act as strategic boundaries to protect investments from significant declines. They automatically sell an asset if its price drops to a predefined level, making them useful for limiting deeper losses during periods of market volatility.

Limit orders, on the other hand, allow investors to set specific price points for buying or selling assets, offering more control over transactions. Both tools are commonly used for individual stocks and ETFs to manage risks during market downturns.

However, these strategies have limitations. In highly volatile markets, stop-loss orders may trigger at lower-than-expected prices, and frequent use can disrupt long-term growth strategies. Similarly, limit orders may not execute if the market fails to reach the specified price, potentially leaving positions exposed during rapid market swings. 

While these tools can help mitigate risk, they are not foolproof and work best when paired with a thoughtful investment strategy. Consider working with an experienced financial advisor, such as those at Trinity Wealth, who can help you determine if and when to use stop-loss strategies as part of your overall risk management plan.

Additional Strategies for Effective Risk Management

Market fluctuations are inevitable, but you can weather these financial challenges more effectively with careful preparation, strategic hedging, and periodic monitoring.

Emergency Funds and Liquidity

An emergency fund is a key element of risk management. It provides a safety net, allowing you to cover unexpected expenses without liquidating investments at a loss.

How much to set aside? Having at least three to six months of living expenses is wise with 1-3 years worth conservatively invested during retirement.

Earning on your reserves: Consider keeping these funds in high-yield savings accounts or municipal money market accounts if you’re in a higher tax bracket.

Liquidity reduces stress, helps you avoid unnecessary debt, and keeps your long-term investments intact during turbulent markets.

Hedging Techniques To Offset Risks

Hedging involves strategies that aim to reduce the impact of market fluctuations on your portfolio. Common techniques include options or futures contracts tied to stocks or indices. Although potentially effective, hedging requires a deeper understanding of financial markets and careful research and is not appropriate for many investors. For those willing to dedicate the time, it can provide an added layer of protection during uncertain times.

Periodic Portfolio Reviews

Watching the markets constantly can lead to unnecessary anxiety. However, periodic portfolio reviews are necessary to assess performance and identify areas for improvement.

During a review, consider key questions: How is the portfolio performing? Are there opportunities or risks to address? Is rebalancing needed due to overconcentration in certain 

areas? Have any changes in your circumstances affected your financial goals?

Trinity’s financial advisors in St. Louis can provide objective guidance, helping you spot opportunities and avoid pitfalls.

Consider Partnering With Trinity Wealth Advisors

Managing investments today is both complex and time-consuming. Many individuals find value in partnering with an advisor who offers clear, unbiased, and expert guidance.

At Trinity Wealth Advisors, we emphasize proactive planning and risk management to help reduce financial stress. Since 1997, Jim Matush and his team have been dedicated to helping individuals and families align their financial goals with their personal values.

By working with our investments, planning, tax, estate, and client services specialists, you benefit from expertise that generalists simply cannot provide. Our team collaborates to develop financial strategies that are both comprehensive and cohesive, with each member contributing their specialized knowledge to your plan.

If you want to learn more about risk management strategies, connect with us today.