An account has $100 in it; Britain leaves the EU now the account has $75, a twenty-five per cent decrease. How much must the account appreciate to regain its $100 balance? A similar account has $100 in it, either of the two US presidential candidates win the election and the account drops to $50, a fifty per cent decrease. How much must the account appreciate to regain its $100 balance?
While the former account dropped by only twenty-five per cent, it must appreciate thirty-three percent to reach the $100 mark. The later account dropped by fifty per cent, it must appreciate one hundred per cent to reach the $100 mark. While this is far from financial or mathematical wizardry, it is a fact some advisors fail to integrate in their portfolio construction during volatile times.
For those of you not in the finance biz, this loss is often referred to as downside capture. In a volatile market, the minimization of downside capture is key. No advisor will ever tell you this, but sometimes it pays to just suck less.
That’s right, suck less. When systemic negative changes happen in the market, the market goes down; your goal should be for your accounts to go down less than the market and effectively suck less.
So if you woke up Friday morning and saw how changes in the EU decreased your 401 k, IRA or NQ account between 3% and 4% like the major indices by days’ end and you are of the belief that you and your investments should suck less than the average persons, we need to talk. Schedule a "Quick Chat" with me today!
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Kestra IS and Kestra AS are not affiliated with Gate City Advisors, LLC
The observations and opinions expressed in this commentary are those of the author and do not necessarily reflect the views of Kestra Advisor Services, LLC or Kestra Investment Services, LLC. This commentary is for general information only and is not intended to provide specific advice or recommendations for any individua