We’re from the government, and we’re here to help!
The government likes to change the rules on a continuous basis for many different reasons. Some are really good, others are really bad. A change in laws or regulations made by the government or a regulatory body can increase the costs of operating a business, reduce the attractiveness of investment and/or change the competitive landscape. This is what we call Regulatory Risk.
Imagine you are playing Monopoly™ and halfway through the game, someone says they are changing all the rules of the game. What impact could the rule changes have on your holdings and strategy to win the game? This situation is similar to what governments do to investors trying to create wealth.
For example, in the 1980’s, the Federal Government set up benefits for owning real estate. Because of this, real estate partnerships flourished and investors could get tax write-offs. A short time later the Government came back and changed the law to disallow these tax write-offs and to recapture the previously-allowed write-offs investors had taken. This was very destructive to the real estate market and to investors.
With the Federal Government creating new rules and regulations continuously, it can be devastating to various business models in the different sectors of our economy AND to your portfolio. Even changes in state and local government, regulations can adversely affect your portfolio. That is why having diversification in your equity holdings is crucial for the survival of your portfolio. If this is a concern that you have with regard to your portfolio, please give our office a call. We want to make sure you are educated on all the different types of risk that are present in your portfolio, and how to hedge them appropriately.