After the coronavirus influenced rapid decline in the market earlier this month, I bet a number of people were quite worried. Although not as many as one might guess because it happened so quickly that the market was at all time highs then down 30% within a number of days.
Most people who do pay attention to their accounts fairly regularly, had likely read their mostly positive February statement recently and had no idea that they had lost 3+ years of gains in 2 weeks. Furthermore, many others who only check their statements quarterly wouldn’t yet notice the damage until after March 31.
That being said, if people truly are or are starting to become worried, we have to realize that that feeling comes from lack of having a plan. And having a “plan” doesn’t necessarily mean one type of plan. As I will explain, you can approach your portfolio from many angles of planning. My point however, is not that one plan is right and another wrong, but that simply having no plan at all is wrong, leads to worry and then likely emotional decisions. Whereas having an anti-fragile plan in place will help make you not worry.
Now this isn’t another one of those articles that tries to explain to you calmly why you should always buy the dip in the market. I don’t agree with that approach always and for everyone. However, this article IS about following through on PRE-EXISTING plans - assuming you have those in place, for various market conditions.
What Plans???
Your financial plan can take many forms. For example, you can follow the pile theory, floor plus upside strategy, flexible retirement and others.
The PILE THEORY is what I refer to as the plan where you just accumulate as much money as you can and then plan to withdraw from that “pile” of money through retirement at a reasonable enough rate that it lasts. Some say that rate is 4%, for example. And typically, while accumulating that pile, you keep buying through ups and downs.
Floor plus upside is a bit more of a conservative strategy where your funds are partitioned and some set aside to create some kind of guaranteed income cash flow that matches your “floor” expenses so that you can pay your regular bills with that. Funds not used to build the cash flow are allocated toward investments for growth to protect against inflation and for longevity (i.e. living a really long time), and not touched until later. While accumulating you can be more aggressive or more “defined” in this type of planning.
“Flexible retirement” is the plan where you hope you have enough, but if you don’t, you might hold off on your goals and work your job longer. Many people do this for various reasons, and many times not out of need.
Plans = Follow Them
The bottom line is that in these plans, there is something you should do. if you are simply accumulating, then these dips should excite you. If your money is more actively managed, maybe you should be seeing smaller losses. If you are close to retirement, then moves to more conservative holdings or putting the floor in place should have already started. The point is, you don’t react after the 30% fall.
What you do should have been decided ahead of time. And already have been in place. it’s important because even with all of the stimulus, I do believe that we have ended an era in the markets and it’s time for correcting the imbalances of excessive debt and lack of responsibility in the system.
Because of that, if the ‘powers that be’ don’t want there to be a serious correction, then they will continue to unleash the amazing amount of stimulus that they have already started. I just don’t know if it will work. It might, but would you want to bet your financial security on it?
If not, it’s not too late to start planning right. Make your financial life more anti-fragile. Get a plan in place that helps you not worry. However you need to do that. And if you want to discuss that with me, please answer a few questions on my intake form HERE and we can set up a time to talk.
Remember, financial markets DON’T OWE YOU ANYTHING so don’t make any assumptions about them that could jeopardize your security. Have a plan, and worry less.
Stay safe.