Principal Preservation: Are You at That Stage?
We are currently witnessing market movements that in the past took years that now happen in a day. 500 to 1,000 point swings are commonplace and investors are becoming numb to this type of violent volatility. These types of market swings are great if you are a trader or a hedge fund manager. They are even better for the computer algorithms that mathematically feast on these movements without emotion 24 hours a day.
That leaves out the rest of us. That leaves out the over 10,000 baby boomers that reach retirement age every single day. That leaves out the vast majority of retirees and pre-retirees trying to reach the retirement finish line.
Even though CNBC, Fox Business, and Bloomberg love covering this monetary carnage...real people are getting financially destroyed and losing sleep worrying about their hard earned nest egg. As with all financial decisions, there’s no perfect answers and everyone’s situation is unique and different. However, this current chaos has made people ask the universal questions...Do I want to lose money?...Do I want to fully protect my principal? Have I reached the stage of principal protection?
Bunt Singles Work
To use an old baseball analogy, bunt singles work. Capital preservation always is a good idea. Whether your goals are short term or long term, it might be time to take a look at what you own that involves risk.
We all love to see the long ball, and the guy that hits all of the home runs seems to get the headlines. In this current market environment, having money in the stock market is like trying to surf beside a cruise ship. You might catch a wave now and again, but eventually you will be sucked under the boat.
Warren’s 2 Rules
The king of Omaha, Nebraska has said in the past that there are 2 rules to investing. Rule number one, never lose money. Rule number two, never forget rule number one. Of course “Warren B.” has lost money, but not often. Even if he does, he can afford that loss. The rest of us really don’t have the time to make up from a huge market correction.
Think of your path to retirement as running 4 laps around your high school track. Those 4 laps equal a mile, but in this example equates into reaching the retirement finish line. Most people are nearing lap 3 heading toward lap 4, or they are on the final lap. If that describes your current retirement path, the protecting your principal becomes more important the close you get to finishing lap 4. At this point, it’s not about rate of return...it’s about protecting what you have and not going backwards.
Any time someone talks about “safe” places to put your money, the “tin foil hat” brigade fights with agenda driven financial salespeople to dominate the narrative. Neither are correct. No one is 100 percent correct when it comes to financial advice or insight.
Safe money places like savings accounts, money market funds, treasury bills, certificates of deposit (CDs), AAA insured municipal bonds, and fixed annuities make up a very small list of principal protection strategies. FDIC insured strategies, state guaranty funds for insurance/annuities, and SIPC coverage for brokerage accounts all serve as investor safety blankets for worried investors.
Of course, all of these safe money strategies aren’t perfect. Nothing is perfect, but these are as good as it gets when looking for pure principal protection.
Quarantined Analysis Time
During this pandemic chaos, it might be a good time to reevaluate the risk that you are shouldering in your portfolio. It might be wise to head to the sidelines for an investment objective risks analysis breather. Do you need more guaranteed income? Should you protect more of your principal? Is it time to hit a few more investment bunt singles for the foreseeable future?
Listen to your gut feeling and instincts on these types of decisions and truly evaluate where you stand right now when it comes to investments and the stock market. It might be time to jump off of that stock market train. You next stop might be that principal preservation stage. It’s worth considering.