If you have invested in the market since March 6, 2009 chances are your account balances have gone up and that last quarterly statement from your investment or retirement account looked pretty good. As it should…this being the second longest expansion in U.S. History.
2017 was a great year for returns as we saw a broad recovery across many asset classes. Domestic, international, cryptocurrencies, and even parts of the bond market faired relatively well in a rising interest rate environment. January 2018 got off to a great start, and then WHAM! A four-digit correction in the DOW.
The reality is this pullback was inevitable; it is simply how markets behave and was only a matter of time. However, even though this is how markets work, we also know how people work…. And this type of environment, this far into an expansion, can leave us feeling nervous.
With that said, if you are feeling like you are playing a financial game of hot potato with your investments and want to prepare for a downturn or reduce stress, options are available to you, which I have outlined below:
- Do Nothing - Stay the course, don’t do anything drastic and stick to a passive long-term approach. There are many people and institutions that follow this approach and if followed can yield results over time. It just takes discipline and time horizon.
- Reduce Risk - Traditionally shifting more of your assets into safer assets like bonds can reduce downside market participation. In general, the fewer stocks people had in years like 2001, 2002, 2008 or the first week of Feb 2018, the less their accounts fell relative to ones that had the more riskier stocks.
- Change to an Active Manager - Managers exist that can literally move from risk assets, like stocks, to safer assets very quickly. They do the opposite of a passive approach. If a downward trend develops these strategists can avoid losses that a passive strategist would likely capture.
- Invest in Non-Market Based Assets - Believe it or not, Stock and Bonds are not the only choices out there. Certain assets like cash, among others, have little if any impact by the market. Maybe these would be good alternatives to a traditional stock and bond mix?
After being in the industry for over a decade, observing behavior, understanding strategies and digging into financial products, no one course of action or approach is good or bad. However, we need to have a in depth understanding of the pro’s and con’s. The purpose of this piece is not to endorse one approach over another, but to remind everyone there are options. As you review your savings strategy and your existing assets, keep the above in mind, and find alignment. A little intentionality can go a long way and we at Ashford Advisors are here to help facilitate that conversation with options that include all 4 approaches above. In fact, a well-balanced approach may be the most appropriate course with elements of all 4 approaches part of the wealth building plan.