Goldman Sachs, the Fed and Risk by Greg Powell

Listen to the audio here: (4:19)

risk imageAs we continue to watch the investigation unfold between Goldman Sachs and the Securities and Exchange Commission, one theme that continues to emerge is the phrase “managing risk.” Goldman Sachs executives have used this phrase often as they attempt to explain how their trading strategies should be viewed by Congressional leaders and investigators in this case.

It may very well turn out that this phrase “managing risk” may be the phrase that sums up 2010. After all, isn’t the Federal Reserve attempting to manage risk in the economy by keeping interest rates low? There are those economists who would argue that the Fed is actually creating another bubble in the stock market as the Fed maintains its commitment to keeping rates stable for an extended period.

The reality is that every investor needs to confront how they personally are managing risk in their individual portfolios. I can assure you that in my 29 years of being in the financial industry, if people had to choose between out performing the S&P 500 index or achieving their dreams and goals, the majority would pick achieving their dreams and goals. To do that, they need to work closely with their financial advisor, not only in discussions about how will my portfolio make money, but also how will we manage the risk in my portfolio in such uncertain times.

The entire world is facing the phrase “managing risk” as we learn that Greece, Spain and Portugal are being downgraded in the quality of each of their country’s debt issues. The Federal Reserve and the entire United States are dealing with their debt and the risks at hand in the U.S. economy. Goldman Sachs and other financial institutions are also confronting their current portfolio strategies and at the same time, asking if they took too much risk in their subprime mortgage strategies.

More than ever, as individuals, you need to analyze your portfolios as to how well your positions will do in down markets as well as up markets. Never forget… every decision has risk.
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