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In the investment management world there is always a concern that customers and clients move their money at the very worst time. This is often caused by something called loss aversion.

We as humans would rather not lose money than position ourselves to make money. I know that sounds more than silly. It’s true.

At Stage 2 we’ve developed a system that helps you stay invested and not panic when the market turns against us as it always does.

First, remember the market trends up over the long-term.

If you were to invest your money almost anyplace in the stock market and then come back twenty years later, your investments would have increased in value. If you were to invest your money and come back ten years later, except for one period your investments would have been up.

Both statements are true and important for you to remember. There is no guarantee that this will work in the future, but for the past it has. Markets trend up over the long haul. That’s a fact and one that we have to keep in mind.

Most of the time your investment are all in one account.

You might ask yourself, why is it that when the markets go down, I get nervous.

I think there are two reasons for this. First, it shows all of your investments are in one account. You might use a mix such as 60% stocks and 40% bonds. Both the stock and bond account get reported together.  When the market dives, you just see one account diving. Rationally, you would notice that your bonds have gone down a little and your stocks a lot. But, there’s that number…the big negative one. That makes you nervous.

What if we had a different system that would simplify how you look at your investments and allow you to stay with the plan you put together?

What you can do to help you stay invested.

I want you to think about your investments differently. I want you to think about what you need for the next ten years. If the answer is nothing, then using one account might be OK, but I would rather a different strategy.

I would rather have you open three separate accounts. One account would hold cash, one account fixed income like bonds and one for stocks. The amount that goes into each account or buckets as we call them depends on where you on in your investment journey.

If you have over ten years before you need the money, we might have a minimum amount of money in cash, a little more in bonds and the rest in stocks. The reason for this is you will not need the money and stocks have traditionally outperformed bonds.

But what if I’m less than ten years away from needing my money

This is where our strategy of putting your assets in separate buckets becomes very important. Now, we want to know how much cash we need every year. For the first three years, we just have a cash account established. For, the next 5 to 8 years we have the yearly amount needed in fixed income. Finally, everything else goes into equities.

Now, if the market tanks you look at your bond account. If that account is stable or up, you take money you need from there. If both your bond and stock account is down, you take money from cash. The purpose here is to keep you invested and allow you to sleep at night. And, since this strategy protects you in most of the time from market swings, it’s easy to do this.

Why simple works better than complicated.

One reason I like this system is because it’s simple. You don’t need any fancy degrees in finance to understand it. Cash is there as an emergency fund. Fixed income is to provide a stable based of assets under most circumstances. Then stocks can go up and down as much as they want and as long as a down market doesn’t last for over ten years, you’re protected.

This is about as simple as we can make an investment strategy. When I explain this to a potential client, they get it right away. It’s the only thing that I’ve seen that allows and encourages clients to stay invested when the markets go down.

What I’ve learned over the years.

Years ago I used to believe that a good investment manager can beat the market. I believe that unless you have fifty million dollars or more, that’s probably not the case. I’ve learned that simple works for the long-term. That’s what the people I work with want.

What about you? Are you interested in learning more about our bucket system and how it can help you stay invested when the next downturn occurs? Click on the button below and take twenty minutes so we can discuss your own situation.

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Topics: bucket planning, financial planning, investment management, Investments, bucket system

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