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Now What Do I Do?

Take a look at these phrases which are today common-speak in financial discussions – “It was bound to happen”; “It was only a matter

time”; “It wasn’t going to last forever”; “I told you so”; “The Bear has arrived”; and “Now what do I do?” 

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I would have to say that in the past several weeks, these phrases are either heard or written in just about every corner, nook, and cranny.  And as for most, dealing with it is a whole other story.

 

So, let’s talk about those things we can control and how one might take advantage of this market volatility.

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There are at least three risks that you must overcome to protect your investment journey.  You need a plan to play effective offense AND defense to maintain your objectives. 

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RISK #1 – Losing significant amounts of wealth.

  • Your biggest threat is NOT market volatility. It's "drawdown" - the absolute dollar losses in your portfolio that cannot be recaptured in the time you need.

  • The mistake? - sell out to cash to "protect" your values - this is a sure way to make losses permanent

Stressed Man

  • Consider this

    • A portfolio ​that falls 10% requires a 11% gain to recover

    • A portfolio that falls 25% requires a 33% gain to get back to break even

    • A portfolio that falls 50% requires a 100% gain to get back to the starting point

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RISK #2 - Missing out on upside growth.

  • The risk of losing wealth is fueled even further by staying out, remaining in cash or conservative positions and missing significant

market gains during up markets which follow market downturns

  • Consider this:

    • Statistics from 1928 through December 2017 compare the top 25% quarters as to market gains to the bottom 75% of quarters for the same period

    • The top 25% of quarters in terms of performance returned on average 14.2% while the bottom 75% of quarters lost on average .08% (SBBI Ibbotson)

    • You cannot afford to miss those "up quarters"!

RISK #3 - Making bad, emotion-driven investment decisions.

  • Examples of these are selling out to cash, failure to get back in if you do, and not having any risk mitigation strategy in your portfolio design

  • Losing sight of the principal that “it is not “timing the market” that generates consistent long-term returns, but “time in the market”.

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So, in these stressful times, having a long-term investment allocation plan, keeping your emotions out of the game, and incorporating a risk mitigation strategy into your investment planning, can keep the fear language at bay.

by Michael Witzig

mwitzig@cirmail.biz

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