I find that many of those who I seen in my office for the first time have a great deal of concern about being invested in the equity markets. That stands to reason. Many of them experience seeing the equity portion of their account cut in half during the Great Recession and the subsequent collapse of all three major market indicators.
Should these people worry? You bet if they don’t have a plan to deal with the next major downturn. In case you have forgotten, the market peaked on October 9, 2007 and declined for 17 months until the bleeding stopped on March 9, 2009. Over that time the S&P 500 declined by 57%, and the average investor saw the equity portion of their account decline by 56.78%. If you started that decline with $500,000 in your IRA, it declined to about $216,100 over this period. It was 65 months before the account grew to breakeven at $500,000. Do you have the time and temperament to do that again? Probably not. Should you worry about it happening again? Most likely. Bear markets with a decline of 20% or more happen on average about every 5.3 years and it has been about 66 months since the last bear market.
I am not losing sleep, and worry little if any about the market. More than a decade ago, I began using a century old system to measure market risk in an explainable, repeatable, numerical based system.
What is different about me? I have a significant number of your friends, neighbors and family members who have entrusted me with their life savings. I care about these people and their account values as much as I ever did. It is just that I have a plan it the market turns ugly again. Of course I have a plan to execute in a bull market. That is the easy side of the business.
Are you sleeping well? Do you have a plan for the next bear market? Has your advisor already explained to you his or her plan to get you through a major decline? If all or some of the answers to the proceeding questions are no, you have some work to do.
Have you been given a plan that says buy and hold while your account will recover? Can you bear to watch again your account decline 20, 30, or 40 percent? If you are retired, do you have excess funds that will allow you to absorb a step decline, or don’t mind either going back to work or reducing your lifestyle? If you are comfortable with those options, I guess I can live with you doing that. If you are not, give me 30 minutes to show you how we make a plan. Give us at 217-337-5584 or you can email me at firstname.lastname@example.org.
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