Wade graduated from college in 2004, immediately got a job, and started saving for his future.
He was more financially prudent than most.
Interest rates at the time were attractive and he was also encouraged to open and invest in a brokerage account. Wade built an emergency fund in his HYSA ($9,200) and amassed an impressive $50k in his brokerage account (by age 25!).
The Great Recession (2007) hit, caught Wade and the rest of the world off guard and he watched his (brokerage) investment account drop by approximately 50%, cut in half to $25,000.
Wade didn’t think too much of it. He didn’t lose his job and still had his emergency fund in cash ($9,200).
The world recovered, Wade stuck with his intuition, and almost two decades later, through an automatic investment plan, Wade had a respectable $400,000 in his investment account.
The dips never last too long.
Through a series of events, Wade (now 44 years old) inherited $1,000,000 that he earmarked for investing.
These funds were outside of a retirement plan and completely accessible to him.
As luck would have it, the market immediately went down upon investing his inheritance and he saw that his $1,000,000 was now worth $940,000. An $60,000 drop! Roughly his annual income.
Something had changed in Wade’s reaction. To him that was a massive decline. Albeit only a 6% drop, it felt much worse than the 50% decline he experienced 20 years prior and several subsequent 20% drops thereafter.
Wade’s no dummy, he clearly understands that the stock market will fluctuate. Afterall he’s lived it and has first-hand experience.
However, this is a great reminder for Wade and everyone reading today.
Financial planners talk in percentages. Everyone else lives in dollars.
–6% sounds manageable and normal, –$60,000 sounds gut wrenching (both the same thing in Wade’s case).
This is a great reminder that the more we save and invest, the snowball grows and picks up speed, the bigger the snowball, the more important our investment behavior becomes.
The more important the comprehensive plan becomes.
Are you ready to weather a –6%, –15% or –$60,000 or –$150,000 drop in your portfolio?
It all starts with a trusted financial plan.
- Do we have ample emergency funds?
- What happens if we need additional liquidity?
- Can we take advantage of market downturns?
This is the plan and more importantly the power of the ongoing planning relationship.
–Nic
This is a hypothetical story and not indicative of any specific situations or client. It is presented only as an example and not intended as investment advice. Investing involved risk and there is no assurance that any investment strategy will be successful.
