The last 12 months featured some of the most traumatic experiences and moments in our nation’s history. Ironically, the investing environment has been one of the best ever despite all of the dire headlines. Since late March of 2020 1-year returns have been phenomenal – we might not see gains like these again for years or decades.
A key point to realize is that when the world goes through dark moments, it’s usually no time to abandon a long-term investment strategy.
The stock market endures crashes regularly. We should all come to expect it. Declines of 30% or more typically happen once every decade or so. Time and again, however, equities bounce back and reward long-term investors.
Flash-forward to today, and there’s risk in the market. What we don’t want to do right now is hold an extremely aggressive portfolio AFTER stocks have surged so much. Proper risk management strategies like rebalancing and risk-reviews are prudent and important in today’s environment. It’s times like now when you want to consider how many years’ worth of relatively safe assets you have in the portfolio.
A key point is that the next crash could happen at any time and we can’t count on such a swift recovery during the next (not so) merry-go-round. For perspective, prior crashes took 5 years or more to get back to even.
Speaking of being prudent, we recommend retirees keep at least 10 years’ worth of relatively safe money available. The ability to be dynamic and reduce your spending when rocky market conditions hit is also important.
A key point is that low-risk portfolio positions serve as insurance against inevitable bear markets in stocks.
We use this ‘safe money’ to buy groceries during bad times. For example, we don’t want to be selling Microsoft to pay for everyday expenses after the stock has dropped 70% or more, and then miss the recovery.
The good news is the stock market is positive in about 70% of all years, so while being positive is important, we must also be prudent.
A key point is that it is easier than ever to flip from “fear” to “greed” when there are pockets of market euphoria. We must remain vigilant to both risk and reward.
Thank you for reading, and please reach out with any financial requests & concerns or if you just want to connect!
-Your Team at ISC Financial Advisors