The market has been choppy in recent weeks. And the volatility has caused some investors to bail and go to the sidelines. They are almost certainly making a mistake. To time the market correctly, you have to make not one great call but two. And the consequences of getting either wrong can dramatically hurt. Let’s say that you bail out of the market – intending, of course, to buy back in at lower levels – but the market doesn’t cooperate. It goes up and down and then resumes its upward trend. What do you do? Do you buy back in having missed part of the rally and risk being in for the next correction? Or do you sit and wait for the market to come back down only to potentially find that it just keeps heading higher, as it has for the past five years?
Since 1929, there have been no less than 17 stock market crashes of 20% or greater, or an average of one every six years. Like all those before it, the 2008 Great Recession decimated many pre-retirement and retirement investment portfolios. Though our world has changed dramatically over the years, the way most people prepare financially for retirement, protect their personal wealth, and invest their retirement nest egg has not kept pace.
Today, many investors approaching retirement either have their hard-earned savings at too much risk or, for safety, use investment vehicles that do not keep pace with the rate of inflation. “Many investors have experienced a net loss in their portfolio for most of the last decade, especially after taking into account taxes and inflation. Most cannot afford more of the same without putting their lifestyle and long-term retirement goals at risk.” The legendary Warren Buffett remarked: “It’s only when the tide goes out that you learn who’s been swimming naked.”
It’s a situation many investors never seriously consider until they are forced to, when their emotions get the best of them and they are bored and frustrated with earning nothing in cash or next to nothing in bonds. Now suppose you bail out of the market and it goes significantly lower. Congratulations, good guess! Good, that is, if you are able to buy back in and do more than just cover your commissions, bid-ask spreads and capital gains taxes. And, for the record, market-timers make a lot of mistakes. As Vanguard founder John Bogle once put it, “Not only do I not know anyone who has timed the market successfully, I don’t know anyone who knows anyone who’s done it.”
That is why with FormulaFolios and AssetLock™ you can eliminate all of the guess work and emotion with your investments. With AssetLock™ you will have peace of mind knowing that you can only lose a certain amount that is chosen based on your risk tolerance. This helps capture gains and eliminate drastic losses. Guessing and emotions are the reason why the average investor had an annual return 0f 3.3% the last 20 years compared to the overall market return of 8.7% annually. This was mostly due to emotionally buying and selling with no plan in place. And in many cases excessive fees also played a big part.
Tactical asset allocation is the number one factor in being diversified and taking advantage of market upswings while protecting against market downturns. FormulaFolios and AssetLock™ can help you realize what every investor wants, which is to receive good consistent returns while protecting principal and gains and knowing what is the most you can lose at any given time. What strategy do you have in place to capture gains and automatically know the maximum loss you can have in your portfolio before it happens?
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