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The Roller-Coaster, your nest-egg and the effect on your life plans

October 30th, 2017

As I write this October 18th, 2017, the Dow Jones Industrials has broken through 23,000; another upside record, halleluiah! Now what?

The doodle immediately above is a loose, very loose, representation of the cyclic nature of stocks – they go up and down.

At peaks, investors experience optimism and exuberance, usually followed by additional investments in stocks. The opposite is true at stock market bottoms; pessimism rules the day, panic creeps in, many sell their stock positions. Most investor mistakes, in our opinion, are made at the height of emotion which as you may have experienced is coincidental with market tops and bottoms.

The reason we undertake planning for our clients is to attenuate the emotional impact of rollercoaster markets. By focusing on the probability of success we believe clients can focus on what’s essential “Am I ok?” and two, “what does it mean if my plan has moved from my target probability of 85% to 80%?”

So, let’s say markets are down substantially and the probability of the plan has dropped to 80% from 85%, what does that mean? Does it mean that there is a 20% probability the plan fails, and I will run out of money in retirement? Most of the time if a plan probability drops a bit, it does not indicate a complete failure, but it may require the client to delay their vacation for a year or delay the car purchase for a few months, in extreme cases, it may require the client to forgo an income raise for a year. Nothing drastic. In our opinion, all these alternatives are a whole lot better than a panic selling spree at a market bottom: recovering from that is almost always impossible.

So, are we at a market top? Yes. Are we likely to go into a severe Bear Market? If I knew that, I’d be on my 350’ yacht of off Monaco enjoying a toddy.

I came across some sage advice this morning in a Raymond James publication by Jeffrey D. Saut, RJ’s Chief Investment Strategist *.

Thinking … reminded us of Peter Lynch’s four stage “Cocktail Theory” as scribed in his book One Up on Wall Street. To wit (as paraphrased):

 I do not know precisely at what stage we are in, one. And, Two; I haven’t received a stock tip from a dentist. So, setting new market highs will most likely continue, for now.

It’s easier to plan for your future than to ride the rollercoaster. Our Family Wealth Planning Process is the first step in attaining the freedom you desire in your retirement.

Take a look: https://windsorwealth.management/wealth-management/

* https://beacon1.rjf.com/ResearchPdf/2017-10/StratDaily101717_070645.pdf

Currently, our portfolios overweighted domestic and foreign equities.

Carlos Dominguez – Portfolio Manager, RJ


Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members.The Dow Jones Average (DJIA) is a price-weighted average of 30 significant stock traded on the New York Stock Exchange (NYSE) and the NADAQ.  The preceding information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Carlos Dominguez and not necessarily those of Raymond James.

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