The coronavirus pandemic has uprooted the lives of millions of Americans and has sent the stock market crashing to all-time lows. While it may be easy to let panic set in, the most important thing you should do is step back, take a deep breath, and reevaluate your investment strategy. But in order to do that, there are a few key facts you need to know about our current financial crisis.
This Financial Crisis Is Nothing New.
The financial crisis spurred by the coronavirus pandemic is no different than any other crisis we’ve seen in the past. We’ve had 12 bear markets since World War II. Each has declined by an average of 35%, then rebounded and rallied to new highs two years after that. (1) Of course, the past isn’t indicative of the future. This financial crisis could last longer than predicted. But the truth is, it will pass. Your portfolio may dip in the short term, but if you hang tight, it will rebound in the long term.
This Financial Crisis Is A New Opportunity For Investors.
We all know we should sell high and buy low. But our gut reaction is usually to run far away when the stock market gets shaky. It’s only human nature. But if we shift our mindsets, we can begin to see a financial crisis as the perfect time to buy investments at a steep discount.
Let’s do a quick history lesson to see what I mean.
The average bear market dips about 36% over the course of 1.3 years. (2) At face level, that seems like a substantial dip over a short period of time. But if we look at the average bull market, it tells a different story. The average bull market lasts around 6.6 years with an average 339% increase (no, that’s not a typo). (3)
What do these numbers mean? First, they mean that bull markets last 5x longer than bear markets, which is good news considering that’s when your dollars get to grow, grow, grow. But perhaps most importantly, it reveals a rare opportunity to buy stocks and other securities when the stock market is at its worst—an opportunity that only comes once every decade or so.
This specific crisis has increased the volatility in both the market and in individual stocks. While some may see this as a bad thing, we see this as an opportunity. In the past, investors have emphasized beta investing over individual stock investing. But now is the time to shift this focus and take advantage of the potential growth of individual stocks.
But how do you do this safely and in a way that aligns with your investment philosophy? That’s where our 3 Bucket Strategy comes in.
A Proven Way To Invest During This Financial Crisis (Our 3 Bucket Strategy)
Our 3 Bucket approach to investing uses short, intermediate, and long-term strategies to help you make the most of a volatile market, while also giving you the liquidity you need to stay on track toward your goals.
Here’s a rundown of each bucket and how it plays a role in your overall investment strategy.
First Bucket: Buy Low, Sell High
The first bucket is focused on your most liquid asset—cash. Cash plays two roles in your short-term investment strategy. First, it allows you to hold onto profits when the markets have given you more than your financial plan and risk tolerance need. Second, it allows you to add back to positions when market returns are below what your financial plan calls for (which is what we’re experiencing now in this financial crisis).
Second Bucket: Future Income Protection
This second bucket focuses on “goldilocks” investments that aim to protect your future income needs with little to no downside risk exposure, while still offering enough growth to preserve your capital against inflation.
Third Bucket: Preserve The Buying Power Of Your Capital Assets
The last bucket is focused on preserving the buying power of your capital over time. This is where a focus on individual stocks comes into play, so you can make sure that the dollar you have today will still buy a dollar of goods and services in the future. A strategic allocation of equities and bonds is known to sustain the buying power of your capital assets over time. Of the three buckets, this is the only one that’s considered to be a “risk on” strategy because of the pricing volatility inherent in our capitalist market system.
How We Help Investors
At Wealth Management Solutions, LLC, our proprietary 3 Bucket investment process aims to limit the risk of over-weighting beyond your personal risk tolerance because it uses a fundamental approach that only selects diversified positions within your asset allocation. One reason we love using this strategy is because it allows our clients to stay focused on their life goals, while addressing their family’s short, intermediate, and long-term objectives.
If you’re interested in learning more about our firm’s investment philosophy, we encourage you to visit our website email@example.com or contact us directly at (949) 475-9700 to schedule a complimentary consultation.
Richard Riva, the founding partner of Wealth Management Solutions, helps families advance their purpose in the framework of family financial matters. He brings comprehensive experience in banking, trust and investment services, and as an independent financial business, the passion in helping people and families, as a trusted advisor.
All investing involves risk including loss of principal. No strategy assures success or protects against loss.
The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
The opinions voiced in this material are for general information only and are not intended to provide specific investment advice or recommendations for any individual.