With the onset of the coronavirus and the uncertainty of the stock market, many investors are feeling on edge. But I have good news for you: we’ve been here before.
While the details are different, a fluctuating stock market is just part of the investment process. But I understand that during a downturn, witnessing a drop in your account value never feels good.
How We Approach Planning for Market Swings
Your investment portfolio should be allocated according to your timeframe and take into account when you will actually be utilizing the money. Charpentier Wealth Strategies approaches this by using 10-year timeframes. Here’s how it works.
Picture separate buckets of money, each bucket representing funds to be utilized over a 10-year period. As an example, we invest the funds you plan to use between 2020-2030 in a very low- risk portfolio, such as bond and income-type investments. The portion/bucket intended for the years 2030-2040 are invested more aggressively, as well as the funds earmarked for use during 2040-2050. The longer timeframe allows you to take more risk because there is plenty of time to ride out the ups and downs of the markets. Individual portfolios are always based upon your personal risk tolerance.
If you follow this approach, market downturns shouldn’t affect your own personal economy (i.e. your household, your family) since your portfolio is intended for use over the next 10 years and is invested in a low-risk portfolio, ready to use at any time.
Why Market Fluctuations are GOOD
Keep in mind that your account value fluctuates every single day, so the main thing to consider is that each time you invest, you buy more shares. When the price is elevated, you are buying less shares for your money. On the flipside, when the markets are lower, you have the chance to buy many more shares because they’re discounted!
It is always fascinating how people run to sales on Black Friday and we flock to the clearance aisles at Wal-Mart and Target, but when there is a sale on Wall Street, many people run the opposite direction. To the everyday investor the concept is simple: buy low, sell high.
Two Things to Keep in Mind
- Reviewing your investments on a quarterly basis is a good idea. Keep in mind, the statements which are mailed out to you are simply a snapshot of your account. The actual values of the shares you own change daily.
- Always remember that the media wants you to watch their stories, which means there is a great deal of sensationalism. The dramatic terms used by the media attract us and we get drawn in. So, if you have questions about your investments, it’s better to talk to your financial advisor rather than listen to the latest news/crises.
Debbie Charpentier has been serving clients since 1989 by using a holistic, comprehensive approach that helps clients create the life they value and the legacy they envision. Charpentier Wealth Strategies is a Bakersfield, CA Financial Planning practice that offers fee-based financial planning services. To contact Debbie, email Debbie.Charpentier@LFG.com. http://charpentierwealth.com/ Debbie Charpentier is a registered representative offering securities and investment advisory services through Lincoln Financial Advisors Corp., (Member SIPC). Charpentier Wealth Strategies is not an affiliate of Lincoln Financial Advisors. CRN3001512-031820