How To Plan For Down Markets…In My Opinion.

Everybody has a plan until they get punched in the mouth – Mike Tyson

We all know investing includes ups and downs. Mostly up… but not always. It’s a natural part of investing. But lately, with the recent run in stocks and concerns rising about a pullback, I have been having more conversations about how to plan for a pullback. To me, the best approach to volatility is to be bipolar: Fiercely protective over any money you will need in the next couple of years and aggressive with investments that you do not need to draw from for some time.

This is a very different approach compared to traditional asset allocation models that require you to ride through any volatility and rely on bonds to rise when stocks fall. Unfortunately, this does not happen every time. This approach can also lead to selling part of your portfolio at lower levels, hampering your ability to recover.

By breaking your portfolio into a Goals Based portfolio, with different risk assigned to different portions, or buckets, of your portfolio, you do not need to worry about how to fund your retirement when the stock market is disappointing. We only need to worry about whether we should be buying more stocks on the dip!

For these ultra conservative investments, right now we are blessed to have interest rates that are higher than the inflation rate, resulting in a positive real return. This has not always been the case (and likely will not be again at some point in the future).

Allocating a specific number of years worth of spending to a series of bonds allows us the time we need for stocks to rebound. That way, we are not selling during a down market!

For the stock side of the portfolio, we can take advantage of long term growth trends. Historically, stocks rise 75% of the time and have averaged an annual return of 10% for the past 90+ years. Most importantly, staying invested is the most crucial component to a successful plan. Trying to outsmart the stock market is incredibly difficult.

At Sevey Wealth, we have a proactive plan for volatility… Do you?