Why the buzz with 3D films these days? The concept isn’t novel – it has been around since the British film innovator William Friese-Greene introduced it in the late 1890s. Still, something has happened among movie-goers – an increased interest in 3D has occurred at the box office.
Take Star Wars: The Force Awakens, for example. It currently ranks as the top-grossing film of all time in North America with more than $935 million in receipts since late 2015, with a significant portion of that revenue from 3D ticket sales.
Evidently, 3D films are connecting deeply with audiences. But why – and how are they doing it?
Perhaps it’s because, unlike the standard formats in black and white and color – both of which do a fine job of telling a story – the 3D format allows the audience to be a part of the story. Get this: In the span of just 135 minutes a patron, perched in a polyester chair that has been patched more than the Millennium Falcon, can join heroic feats like no other – in a galaxy not so far away.
When it comes to investment risk, many view it from only one perspective – typically, the extent to which mutual funds, which are commonly used among investors, can change significantly in value in short periods of time. It’s natural to look at investment risk in terms of black and white (the word risk actually implies the potential for a loss) or in color (any loss can be emotionally upsetting, right?).
But what if you could view investment risk in 3D for a moment? What if you could simultaneously view investment risk from multiple angles – from framing what’s happening around you to discerning any positive outcomes that are possible for you in the coming years?
Let’s discuss how viewing investment risk in 3D might work for your own financial picture.
- Think of the most common investment risk – volatility – in terms of duration. While downturns in short periods can be worrisome, many investors have been rewarded for their patience and discipline (sticking with the “why” principle) over the long run. Let’s take Sally for example, who made a one-time $10,000 investment in her account in 1995, left the funds invested for 20 years, and experienced returns that reflect the S&P 500 (a broad measure of the equity market) in that time frame.
By the end of 2014, Sally’s balance grew to $65,453 – an annual return of 9.8 percent. But what if Sally had missed just 30 of the best days in the market during this time? Her balance would have been $13,446 – an annual return of 1.49 percent. Viewed from a different perspective, from 1995-2014, six of the 10 best days in the market happened within two weeks of the 10 worst days*.
One final comment on duration: Since investment values can change in short time periods, think of any investment strategy in the context of at least a five-year time horizon.
- Use the availability of multiple dimensions to your advantage. In the investment world, this is called diversification. Mutual funds focus on various outcomes (e.g., bond funds seek income, while equity funds look for growth opportunities), over different time frames, in diverse places of the world. Having a diversified mix of mutual fund investments can potentially reduce some risks, including volatility, and broaden your opportunities for reaching your goals over time.
- Flip the script – and determine what happens next. Unfortunately, investment risk is a practical reality: It manifests itself at times and in ways that are simply beyond your ultimate control; however, investment risk does not have to derail what you would like to accomplish in the long run. There are several options within your grasp – from your resolve (How do you respond when things do not go your way?) to how much and how often you save and the quality of the investments you have working on your behalf.
Much of 3D’s appeal stems from its engagement factor. Similarly, when investment risk is viewed constructively – yes, in 3D – and engages your imagination concerning what you can do with it over time, it can be an empowering experience.
This is merely a conversation starter, of course. Reach out to a CFP® professional today to discuss your own financial picture in broader detail.
*Source: “Guide to Retirement,” 2016 Edition, J.P. Morgan