I’m down “x” dollars this year. What should I do?
Here’s the way I look at it. We had an incredible run over the last three years. We were bound to give back some of those gains. I try to imagine a scenario where the gains could have been much more linear rather than so volatile. If that were the case, none of us would be any the wiser. If I were to predict four years ago where we are today, we’d probably all be happy with slower, but more consistent returns with our account balances at today’s amount.
Why does this happen?
The markets correct for many reasons. I listed a few affecting this particular market in my last commentary letter. Uncertainty seems to be the biggest culprit. We’ve had 24 market corrections in the last 48 years as noted here. That’s averaging one every two years! I know they are easy to forget about when we go back up, but they happened.
Do you ever just sell everything when the market is going down?
Never, and there are two reasons. 1) All Investment Objectives invested in the market have a purpose. It is to attempt a better return than a safe investment by taking on risk to some degree. Once you have decided to invest, it’s important to find the risk tolerance that suits you. This is the most important step and how I plan for down markets. We always need to make sure you are comfortable with your risk tolerance. 2) The old adage of timing the stock market holds true. Not only would I have to time it once (by selling), but also a second time when buying. I’ve watched the stock market nearly every day for almost 20 years now. I’ve seen hundreds of professional traders and fund managers try to do exactly that. In all those times, I remember only one instance of a single daytrader buying the low and selling the high of the day.
What do you do when the market is down?
I tend to look for a good rebalancing point for the accounts. I also have some leeway on the risk allowed in each Investment Objective. You might see your account move a few percentage points to bonds or stocks in either direction. However, like the previous question answered, your best strategy is your initial risk tolerance.
Why don’t you do much with Annuities or other investments that I hear about?
We mostly do Advisory investment accounts at our firm. This is where you hire your investment professional at a percentage rate to manage your investments in the chosen Investment Objective. This allows your advisor to be a Fiduciary on your account. It’s the standard that I think all advisors should be held accountable to. We should always have your best interest first.