IN Peters Township December 2019/January 2020 | Page 39

INDUSTRY INSIGHT
YOUR FINANCES
SPONSORED CONTENT
WIN
BY NOT
LOSING
A
nyone in the stock market knows it’s a roller coaster
ride, and there are always twists and turns and ups
and downs. But what better place to invest your hard-
earned cash and retirement nest egg?
Over the last 20 years, the S&P 500 has been up over 200%.
Since 2008 the S&P 500 has been up over 300%! And year-to-
date the S&P is up over 23% (as of November 12, 2019).
Obviously, investing in stocks can be very rewarding, but
unfortunately, the road to financial success is cluttered with
failed financial plans. How many investors can withstand the
volatility–the daily whipsawing, uncertainty, and vicissitudes of
the stock market?
Bull markets are great, and we have enjoyed one of the
longest Bull market runs in history since 2008. The real test for
investors, however, occurs during Bear markets. Let’s not forget
the Wall Street Crash (1929), the Stock Market Crash (1973-74),
Black Monday (19 Oct, 1987), the Tech Bust (10 March, 2000),
and, of course, the Housing Market Crisis (2007-08). We can even
go back in history to the Tulip Mania Bubble (1637) and the
South Sea Bubble (1720).
So how does an investor enjoy the great benefits of the stock
market without losing – with less worry about what’s going to
happen next?
The simple answer, of course, is to invest wisely and diversify.
Don’t get caught up in bubbles and speculation. It’s the same old
story where the tortoise beats the hare.
Diversification does not prevent you from having losses, but
holding one or even two years of income in cash or fixed income
may prevent you from having to sell during a market correction
or economic recession. It is better to think long term than to be
in a position where you have to sell stock at a low point in the
market cycle.
A diversified approach may be somewhat methodical but may
hold up more favorably in a volatile environment. The benefits of
diversification became apparent recently when a balanced index
portfolio earned a slightly better return than an all-equity S&P
500 index (1 Oct, 2018 through Sept 2019). In the 4th quarter of
2018, the S&P 500 was down 13½%; whereas a balanced index
portfolio was down only about half that much, or 6.9%.
The larger the downturn, the larger the gain needed to break
even. One might think if you lost 13½% and then gained 13½%
you would return to your original value. But you actually need to
gain 16% to break even from a 13½% loss.
2008 provided another example, when US stocks were down
around 50%. An all-equity portfolio needed a 100% return then –
just to get back to even. A balanced index portfolio needed only
about half that much.
That’s why successful investing is not just about what happens
during Bull markets. Your return during a Bear market can be just
as important – if not more so.
A well-diversified investment strategy based on one’s financial
goals and risk tolerance can smooth out the ride. Yes, the
investment will still go up and down with the market, but the
ride will not be nearly as scary.
Recognize that it may be difficult to determine your risk
tolerance. It’s obviously a very personal and subjective
assessment. This is why many investors have a professional
financial advisor who can be objective and offer a much broader
perspective.
There are some who look for excitement when investing.
My advice: look for excitement somewhere else–skydiving or
extreme skiing might be a start.
Your personal finances are too important for you and your
family to play with–even a little. A more conservative approach
to investing may help you to win by not losing.
This Industry Insight was written by Garrett S. Hoge.
Garrett S. Hoge, CFP®, ChFC®, MS, of H Financial
Management, is a private wealth manager based in
Southpointe serving the ever-changing financial needs
of his clients. Please contact Garrett at H Financial
Management, 400 Southpointe Blvd., #420, Canonsburg,
PA 15317, Phone: [phone], Email: garrett@hfinancial.
net, or via the Web: www.hfinancialmanagement.com.
Securities offered through Triad Advisors, LLC, Member
FINRA/SIPC • Advisory Services offered through H
Financial Management.
H Financial Management is not affiliated with Triad
Advisors, LLC.
PETERS TOWNSHIP
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DECEMBER 2019/JANUARY 2020
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