How Things Are Changing

Going forward, Crager says “the investor is going to have more of a capital preservation mindset versus a growth mindset.” How long will that last? Crager doesn’t pretend to know, though he points out that “when the market turns, everyone’s psychology will change.” Since, he says, investors “overestimate their tolerance for risk,” he believes it’s incumbent upon the industry to reevaluate the risk questionnaire process. He also wonders “What do one-, three-, and five-year returns mean as we exit the market, and what do we do about traditional market assumptions, and how will that impact asset allocation?”

All is not bleak, he argues. “In bad times comes innovation, so I think you’ll see some interesting portfolio theories crop up that will gain a foothold with a group of financial advisors who think that is the way to manage assets.”–James J. Green