Campbell Wealth Management - October 2019

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When a hurricane comes, it’s never a surprise. These storms are tracked for several days before they make landfall, giving residents a chance to prepare. Other types of storms, like tornadoes, can appear with little to no warning. One moment, there’s nothing, and the next, there’s a path of destruction. With Hurricane Dorian passing through recently, bringing with it significant devastation in the Bahamas and the East Coast, I’ve also been thinking about the volatility in the markets. We could be seeing a storm on the horizon. For the most part, the market is reaching new all-time highs. It’s been rising for the past 10 years, and its performance has been impressive. This year, however, we’ve started to see some serious volatility —more than usual. It’s like the volatility you see in weather patterns as a hurricane forms and grows over the Atlantic. Since the market hit its modern low in March 2009, it’s rebounded by 400%. What’s really impressive is that this rebound has lasted 10 years. At the same time, it also means a lot of people have become complacent. I bring this up because I want to tell you a bit about our “downside protection strategy.” Just as hurricanes can be destructive, so can economic downturns. But, just as we can prepare for a hurricane —we can board up our windows and leave town for a few days —we can also prepare for a downturn.

But a lot of people aren’t doing anything about it, despite what economists and analysts are saying. Instead, many investors and portfolio managers are going to wait for the storm to be overhead before they finally decide to take action. We, however, are doing something. Mark Wagner, CFA®, our Portfolio Manager, keeps a very close eye on all our portfolios. He’s also deeply involved in our Progress and Protect Program. All of our clients are either nearing or in retirement and our priority is to protect them. This program is designed to help do just that. It’s about making sure elements of our portfolios are allocated properly. Ordinarily, a portfolio may be 60% stocks and 40% bonds (for example). As the economy shifts toward downturn, we may sell off some of the stocks and replace them with bonds. Then, when the economy recovers, we switch again. We do everything in our power to mitigate the effects of an economic downturn. In an ordinary downturn, people can lose between 30% to 50% of their portfolio’s value. That can significantly alter how you live in retirement. Part of the problem isn’t just a loss in value, but the impulse to sell. During a downturn or recession, it can be very tempting to sell without giving serious consideration to what you are selling. You only want to get out before it gets worse. It’s an emotional decision. But you end up selling low (and buying high). The timing is all wrong.

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