The possible impact of the Coronavirus spreading is causing a panic sell-off in the stock markets around the globe. You’ve likely noticed a drop in the value of your 401k and IRAs.
Have you heard of a black swan event? It’s a metaphor that describes an event that comes as a surprise, has a major effect, and is often inappropriately rationalized after the fact with the benefit of hindsight. While recent events have been dramatic, there is no need to panic.
We'll tell you why.
Today is February 27th, 2020 and over the last 6 trading days the DJIA has dropped around 3000 points. That’s a 10% drop in a very short period of time. Did corporate earnings decline? NO. Did corporations start laying employees off? No. Were stock prices extremely overpriced? No. In fact, the U.S. economy is on solid ground overall. What is happening?
Have you heard of a black swan event? It’s a metaphor that describes an event that comes as a surprise, has a major effect, and is often inappropriately rationalized after the fact with the benefit of hindsight. The possible impact of the Coronavirus spreading is causing a panic sell-off in the stock markets around the globe. You’ve likely noticed a drop in the value of your 401k and IRAs.
This is not the time to panic. Did you know, according to the Dalbar study, the average investor’s annual return over a 20 year period (1999-2018) was a dismal 1.9%? It is very hard to accumulate wealth and have a successful financial plan if your average return is below 2%.
The recent sell-off in the stock market is because of the spread of the Coronavirus. Here is what Warren Buffet said about the Coronavirus: “If you own stocks you are going to own them for 10+ years. Has the 10+ year outlook for American Businesses changed in the last 24-48 hours? I’m not buying or selling stocks based on the recent headlines.”
An event like this is the very reason why all investors should have an emergency fund and what we call our Bucket 1 portfolio. Bucket 1 is usually a separate account with enough money to cover expected and unexpected expenses that may occur over the next 5 years.
Your Bucket 1 portfolio is like a moat around the castle. It’s there for protection. When the stock market takes a dive, your bucket 1 investments are carefully selected with the goal to preserve your capital.
When you have a fully funded Bucket 1, you can give the rest of your investments time to recover. Such an approach may increase your success as a disciplined investor.
In my research and experience on the topics of Wealth Accumulation, Wealth Preservation, and Retirement Income Planning, I have found this to be a most effective approach to managing wealth and providing secure retirement income - especially with the inevitable periods of market volatility such as those we are now experiencing.
As always, I am here to help you, your family, and your friends. To discuss this approach and the investments we have selected for this portfolio, please don’t hesitate to contact us.
Doug Pardieck, CRC®
Diversification and asset allocation strategies do not assure profit or pretecta gains loss. Past performance is no guarantee of future results. Investing involves risk. Depending on the types of investments, there may be varying degrees of risk. Investors should be prepared to bare loss, including total loss of principal. Securities offered through Registered Representatives of Cambridge Investment Research, Inc., a broker-dealer, member FINRA/SIPC. Advisory services through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and Talon Wealth Strategies are not affiliated.