A Tale of Two Investors

May 7, 2019 | Financial Habits

It was the best of times; it was the worst of times.

No, I’m not referring to the classic Charles Dickens novel, A Tale of Two Cities.  I am speaking of the volatile nature of the investment markets over the past two quarters and its impact on the Tale of Two Investors.  Last quarter we spoke to the huge decline in Q4 2018 and today I report that the market has not only recovered its previous losses, but S&P 500 is at an all-time high.  These kinds of markets expose “a tale of two investors”; those who have developed a long-term investment plan and know where they are headed and those who haven’t.

December 2018 will go down as the worst year since the financial crisis and the worst December for the S&P 500 Stock Index since 1931.  Yet, Q1 2019 will go down as the best first quarter since 1998. The total decline from September 20, 2018 thru December 24, 2018 was nearly 20%, which is the technical definition of a stock market correction. Yet on April 30, 2019, the S&P 500 Index hit a new record high. The divergence in returns from quarter to quarter might even suggest that it’s not even the same economy.

Based on the market volatility over the past two quarters, have you found yourself asking the following questions:

·         If I am going to depend on my investments to supplement my income in retirement, how does this kind of market volatility affect my psyche or confidence, especially if I am spending down my investments?

·         Is there a way to measure the amount of volatility I can withstand in my portfolio and still meet my long-term financial goals?

·         Is there a better way to protect myself from this kind of volatility?

Greater market volatility may become the new normal, but it doesn’t make it any easier to accept, especially when you’ve worked many years accumulating a meaningful amount of assets and most of all can’t afford to make any major financial mistakes.

Most people spend their lifetime accumulating assets, but don’t develop a plan on how they will preserve and pay themselves from those assets once they retire.

Most of our clients came to us searching for the following:

1.       When can I retire?

2.       What amount of assets will I need to replace my income (desired lifestyle)?

3.       Where will I generate the cashflow I need in retirement?

4.       How can I measure my probability of success and minimize the impact of volatility?

Success in life, no matter what you do involves planning and that’s the approach we take with our clients. Our clients aspire to control their financial destiny instead of being a slave to it and that means eventually retiring on their own terms.  We want our clients to have success in life, because long term financial security is too important not to plan so you can understand where you’re going.

Financial or Wealth planning is a dynamic process and not static.  It’s not a document you store in a three-ring binder and only look at it every couple of years.  Our approach to planning is based on real time data and assumptions because we believe there are so many complicating factors that can aid or torpedo your outcome.

There are two kinds of investors: those who have a plan so they can get beyond the volatile nature of the markets and those who don’t.

Which one do you want to be?

Let us help you develop a plan for success so you can not only meet your long-term lifetime financial goals but also not agonize over the volatile nature of the financial markets.

Sources: YCharts; Yahoo Finance

Business Insider: “Stocks book their worst year since the financial crisis and worst December since the Great Depression” 12/31/2018

The Street.com: “Dow Gains on Last Day of Worst December Since the Depression” 12/31/2018

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