Another Important Message 12 Years Later
It was just about 12 years ago that I sent out an email to our clients, “IMPORTANT MESSAGE FROM JIM LUDWICK” on the subject line. It was the depths of the last market slide into 50% loss of stock market value. What was my message? Stop watching television. And if you must watch TV, then only view HGTV and Turner Classic Movies. Today is different.
With people around the world needing information and advice on avoiding or spreading a dangerous virus, we can no longer ask folks to disengage from media attention. Then what can we do to help in our area of expertise? Remember to maintain Bucket 1.
Bucket 1 is part of the 3 Bucket strategy of segregation of securities by timeline, so near-term needed funds are exempt from volatility. The historical stock market has never been down for more than three years in a row which is the justification for that specific time range.
The credit crisis of 2008-early 2009 took a relatively short time to recover because of massive government intervention. Investors who had a 60/40 stock to bond allocation returned to positive territory in less than two years and even sooner if they continued to save all along the path down and up again. Retirees and non-savers who had a 50/50 allocation were back to positive territory in less than two years also.
Another point made recently by The Vanguard Group, is that since 1980 we investors have experienced 12 corrections of 10% loss or more, 8 bear markets of 20% loss or more, and 5 recessions. Fortunately, I’ve been through them all. These things, although unpredictable, are part of the natural ebb and flow of securities through the economic concept of supply and demand. To quote my former boss, famed money manager Ken Fisher, “If people think profits are going up, they buy stock, and if they think profits are going down, they sell stock”.
It looks like there will be an economic disruption for a while. People will anticipate less profits so the sell off we’re experiencing may continue. If you’re positioned well with your Bucket 1 monies you can avoid selling in a down market. You may not be happy, but you will lose little sleep worried about the stock and bond markets funding your short-term needs.
In the meantime, LIMIT your media exposure to a small daily dose. We know it’s important for the safety of family and others. As for your savings plans, keep at it. If you’re a retiree, create memories instead of buying things. Also, you can continue to watch “Love It or List It”, and “Casablanca”.