Ok, let me explain, because I know you’re thinking volatility, especially like what we have in the markets today, cannot be good, right?
Well, here goes….
Start with a well-diversified portfolio and an investment plan structured so that you know for a fact your lifestyle will not change due to market movements over the next five years.
Is this possible? Yes. In fact, it’s easy – simply take the net cash you will need over the next five years and put it into a bank account.
Ok, now that we know our investments are long-term, we can see that volatility is good for us.
Reason number one is: when markets dip and we are continuing to invest (like through 401k contributions), we are buying low. That’s good because we are turbo-charging our portfolio for the recovery (and recoveries have always followed market drops).
This also works if you are taking distributions to fund your retirement as, given you have 5 years of cash saved up, you can reduce distributions, continue your current lifestyle and decrease your savings to, say 4 years of cash, over the next year.
Reason number two that volatility is good is that it brings higher returns. We know the phrase “high risk, high reward.” Well, that’s what we are talking about here.
You see, as the markets have dropped, stocks have been returning to their most appropriate holders – the long-term investors – and if you are following a solid plan, that’s you!
When the stock market recovery comes, you will benefit fully and the losers will be those who were forced to sell (likely because they shouldn’t have owned stocks in the first place).
Success comes from your plan. Your investments are only fuel for that plan.
For more detail, go to https://bestfinlife.com/blog and let’s start calibrating your path to clarity!
Best Financial Life is a Registered Investment Advisor with the State of California and Joe Morgan is a fiduciary to his clients at all times. If you’d like to ensure your finances are on the right track, schedule a call with Joe at www.calendly.com/bestfinlife.
By Joe Morgan, CFP®, CFA, Principal: Best Financial Life, Resident since 2004