Stock Market Crash – How To Make It Through It Show 64


Hello,
A kid named Anthony spends all of his free time honing his basketball skills. He wants to play in the NBA one day. As a young person, I had similar aspirations so I can relate to his zeal.
Anthony’s neighbors saw him day in and day out practicing dribbling and wanted to support his hard work. His neighbor, a man named Ian, began raising the funds to buy him a new basketball goal and later presented it to him.
Obviously, Anthony was overwhelmed by his neighbor’s generosity. Don’t get so overwhelmed with the difficult things we have to navigate that you lose sight of the good in people. Click here to see more about this story.
Anthony
This past Friday, Spartanburg hosted an annual bicycle race downtown. It’s a closed-circuit race that circles a couple of city blocks. It gets fast, as speeds can approach thirty miles per hour. That’s fast for a bicycle!
In my twenties, I got really into this type of cycling. So much so that I raced in four states. I quickly learned my skill set and what I wasn’t as good at. When one rider gets away from the group, it’s called a breakaway. Sometimes the rider can stay away and sometimes there may be two or three or more riders in a breakaway. They help each other stay away from the group by working together. This was never my strong suit.
If there was not a breakaway during a race, the group of cyclists may stay together and on the last lap everyone in contention would sprint to the finish line. If I had not overly exerted myself, I could sprint pretty well, and I had my best luck with this approach. The trick was not using all of my energy trying to make a break.
If the group ended up catching the breakaway, often those riders would float to the back of the group because they were spent. They had no energy left. If they had left room in their physical gas tank, they might get back in the group and finish, but often times they were not in contention again during that race. I’m pictured below in red in a race.
David riding a bike
This concept relates to our finances, in that risk isn’t inherently bad. Taking that risk in a breakaway isn’t inherently bad, but it wasn’t for me. Assuming too much risk may not allow us to stay in the fight to see another day. Incorporating a plan that has the capacity for adjustments is essential.
Morgan Housel writes in The Psychology of Money, “… Room for error is underappreciated and misunderstood. It’s often viewed as a conservative hedge, used by those who don’t want to take much risk or aren’t confident in their views. But when used appropriately, it’s quite the opposite.”
He goes on to write, “Room for error lets you endure a range of potential outcomes, and endurance lets you stick around long enough to lets the odds of benefiting from low-probability outcome fall in your favor. The biggest gains occur infrequently, either because they don’t happen often or because they take time to compound. So the person with enough room for error in part of their strategy (cash) to let them endure hardship in another (stocks) had an edge over the person who gets wiped out, game over, insert more tokens, when they’re wrong.” Morgan Housel is pictured below.
morgan housel
A way to incorporate room for error in your planning is to create safety nets or guardrails around a portion of your money. One way to do that is having cash on hand like we mentioned above, but after six months of bill paying it becomes unproductive to have more cash. So, what do you do?
Rolling Stone magazine recently had an article addressing the top concerns of the Baby Boomer generation. The article states, “Make sure your investments outpace typical inflation rates. There are many things that have guaranteed rates or at least no risk for loss and higher potential upside. Consider multi-year guaranteed annuities, fixed indexed annuities, and of course, make sure you’re diversified into regular indexed mutual funds. Fixed indexed annuities and multi-year guaranteed annuities are both safe options to consider because they have minimum guaranteed interest rates. Fixed indexed annuities often have lower guaranteed rates; however, they have a high potential yield of return.”
A fixed annuity not only helps you beat the typical inflation rates, it guarantees you won’t lose money in a market downturn. This type of vehicle should be used as a bond replacement, because most bonds have become unproductive with interest rates being near zero. Plus, it’s actually safer than a bond since it doesn’t carry the interest rate risks that bonds do.
If you’d like for me to do a webinar on how annuities work, please respond to this email and let me know. I’ve been considering this, and I value your feedback.
As always, we stand ready to assist you. I’m always happy to answer your questions and help you! You can reach me at 864.641.7955 or by responding to this email.
Until next week,
David C. Treece,
Financial Advisor
Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM). AEWM and Clients Excel, LLC are not affiliated companies. Investing involves risk, including potential loss of principal. Any references to protection, safety, or lifetime income, generally refer to fixed insurance products, never securities or investments. Insurance guarantees are backed by the financial strength and claims paying abilities of the insuring carrier. This podcast is intended for informational purposes only. It is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet particular needs of an individual’s situation. Clients Excel is not permitted to offer and no statement made during this show shall constitute tax or legal advice. Our firm is not affiliated with or endorsed by the U.S. Government or any governmental agency. The information and opinions contained herein provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by Clients Excel.

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