Your Investments Will Lose 48% – Time to Panic (Part 1)

 In Advisers, Agents, Asset Allocation, Expectations, Financial Planning, Forecasts, Future, Goals, Insurance, Investments, Motivation, Retirees, Retirement, Roth IRA

SO, YOUR INVESTMENTS ARE DOING WELL.  The “markets” have been going up for several years – they are on a roll.  We are in the midst of one of the best periods of investment growth ever.  Happy days are here again.  Just think how much you could have made if you had put a lot more in the markets back in 2009, when they were really down?  You would have made a killing!

THIS IS ALL GREAT!  But are you ready to start losing on your investments?  Right now. And not just a little, but a lot.  Serious losses, day after day, week after week, month after month, year after year. Do I need to remind you that the markets go down?  They can go a long way down, for extended periods of time. When this happens, what will you do?

DON’T WAIT UNTIL THIS HAPPENS TO FIGURE OUT HOW YOU MIGHT RESPOND.  Deal with this now because if you wait to deal with this until the markets are crashing and your investments are in free fall, you could make some costly and bad decisions.  

WHAT TO DO NOW

IF YOU HAVE A MAJORITY OF YOUR INVESTMENTS IN THE STOCK MARKET, and some in the bond markets as well, I recommend the following exercise to help you determine whether or not these investments are appropriate for you.  Pull up your account or view your most recent statement for your IRA or your 401k or any other investment that matters to you. How large is the account?

IS IT $5,000 OR $10,000?  WHAT ABOUT $75,000?  MAYBE $200,000 OR $500,000.  If this amount matters to you, if it is important to you, reduce it by 48%. For example, if the amount is $68,000, imagine that it is now $35,360.  Or if it is $185,000, imagine that it is $96,200. How do you feel now? No, really, how do you feel??!!  Not so good anymore?  In fact, do you feel miserable?  

THIS WOULD BE A HUGE LOSS!  Do you have the stomach for losing this kind of money?  If this happens, it would be normal for you to start to wonder if your investments will ever go up again – will they ever return their value?  

YOU PROBABLY KNOW THAT THE MARKETS HAVE ALWAYS RECOVERED IN THE PAST, but how long will this recovery take?  What if it takes 10 or 15 years?  Are you really going to endure that kind of a loss for that long? Are you just going to stick with it when all $&#% breaks lose?  This money is your future – and it is now worth 48% less.  

OF COURSE, THE NEWS WILL BE ENDLESS.  24/7 coverage of the economic catastrophe.  The financial apocalypse will be here – as bad as ever.  You might be upset with yourself and angry and want someone to blame because you just “lost” all this money.  And the media will start to look for those to blame.  The “told-you-so’s” will come out.  Politicians will get in on the act as well.   Pension plans funding status will sink to new lows.  There will be congressional hearings.  We have to get those responsible for this, don’t we? Someone must pay!  Wall Street, the rich, the government, free markets, instability, overseas investors, hedge fund managers, uncertainty, derivatives, etc.

THEN YOU WILL START TO HEAR ABOUT THE PEOPLE THAT DIDN’T LOSE A DIME.  Friends, family, colleagues, and media reports of those investors that somehow avoided this mess.  Were they are lucky or smart?  You may wish that you had done, well, whatever they did.  Were they doing the right thing all along?  What did they invest in?  How did they manage to do it?  Who is their adviser?  Who did they know?  What information did they have access to?  Did they get out at the right time? How did they know how to do that?  You thought you were doing the right thing, but you’re not so sure anymore.

YOU WILL NOTICE THE COMMERCIALS FOR THE SAFE INVESTMENTS AND THE SMART ADVISERS.  You will pay more attention to them.  They will promote their products and plans that protect you no matter what happens.  Sounds great, right?  If you had just looked into one of these before all of this you would be a lot better off.  You might think it’s time to finally learn more about these options – they will sound very appealing.   Maybe you should attend to one of their “free” dinners. Couldn’t hurt, could it?  

WHEN THE MARKETS TANK, and you lose a lot of your money, and the news is awful, are you really going to sit there and do nothing?  Sure, you took a risk tolerance questionnaire that said that you are a “moderately aggressive” investor, but it never prepared you for this!  Turns out the best measure of your risk tolerance is when you really lose money – a lot of money.

DO THIS EXERCISE TODAY 

BE HONEST WITH YOURSELF.  How will you respond if your portfolio goes down by 48%?  There is no point in deceiving yourself about how you will react.  

In Part 2, we are going to discuss what you could do and explain what you should do when this happens.

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