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Planning for the Unexpected: Loss of Investments

| September 26, 2018
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Investing can be tons of fun. You watch those numbers potentially go up at each report and you feel more confident and in control when you see your money working hard for you. Unfortunately, however, the market doesn’t just go up. It goes down, too.

Investments, because they are based on the market and what’s going on there, aren’t guaranteed to be steady. From time to time, especially based on major economic events, you may see your investments take a massive -- and very unexpected -- dive.

What you need to know about investing

All investments go up and down in value all the time. There’s no running away from that fluctuation and variability. These fluctuations are what make investments so great, too; you can potentially see huge growth in the span of a quarter, which can help you reach some of your major life goals. Of course, with that variability comes the risk of (temporary) decreases in your overall investment accounts.

That’s why you have to have a disciplined process for handling investment losses.

Bucket strategy for mitigating investment loss

We believe that investments should be designed around your life. In your life, you likely have short-term, medium-term, and long-term goals, which is why we use “The Bucket Strategy” with our clients.

The Bucket Strategy uses a short-term, medium-term, and long-term “bucket’ of investments for each part of your life. Short-term investment buckets usually include your emergency fund and conservative investments that don’t fluctuate much. This way, you have the short-term cash you need in case of emergency or to meet your immediate investment goals, without fear that it’s all going to disappear when you need it.

In the medium or intermediate bucket, we focus on investments that help you save for upcoming goals. For many clients, this includes a down payment on a house, a new car purchase, adoption plans, and so on. In general, intermediate goals are milestones you want to save and prepare for that are 3 to 5 years out.

Finally, we come to the long-term bucket, which mostly includes retirement and estate funds. These are the investments that are going to carry you through your “golden years,” and possibly include legacy benefits for your family when you pass. Because you have such a long-term view with these investments, you can be a bit more aggressive and focus on investments that long-term growth potential, which means they may fluctuate more. You have more time to benefit from the gains, while also having time to recoup any losses.

Don’t invest all your cash

Another component to weathering investment losses is to make sure you don’t invest everything you have. You still need cash on hand. When your investments take a dip or a major life event occurs (because that will inevitably happen!), you won’t be forced to dig into savings or other investment accounts to keep things afloat.

In general, having 3-12 months of savings on hand is a great way to make sure you can still invest, have a long-term vision for your life, and keep the lights on even if you lose your job or experience a tragedy. If you’re wondering how much you should save, spend, and invest, our financial planner would be happy to explore options with you. Contact us today to see if we’d be a good fit!

Opportunity

Last but not least, you need to have an opportunity mindset when it comes to investments. Not only do you potentially have the opportunity to accumulate a lot more money when the market is up, but there is massive opportunity when the market is down. This is your chance to “get in on the ground floor” of other investments, positioning yourself for when the market inevitably bounces back again.

Keeping these three things (your buckets, cash on hand, and opportunity mindset) in mind when you experience sudden investment loss can help you keep your chin up. We know that it’s no fun to watch your account numbers decrease, but the right approach and mindset can go a long way in helping you build the life you want with investments.

You can also download and use our Vision Worksheet to help you put your short-term, intermediate, and long-term “buckets” into perspective so that you know you’re on track with your investments.

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If you’re wondering how to plan for an unexpected investment loss, we can help. Reach us at [email protected] to discuss our investment management services.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

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