The markets have dropped. What now?

Protect your income and provide some stability for those you care about

If you have seen or heard the news in the last few weeks, you have probably heard about the virus referred to as the Coronavirus or COVID-19.

We’ll leave any analysis and advice related to the virus itself up to health care professionals, but we did want to reach out to you to talk about the stock market reaction to the virus news.

There has obviously been a lot of downward stock market volatility in the last week to say the least. The S&P 500 closed down about 8% Year to Date as of yesterday.  And, until the personal and economic effects of the virus become more certain, volatility may continue in the short term (for a more detailed market update, click here).

Of course, few, if any of us are invested 100% in stocks, so you likely aren’t down as much as the 8% drop in the S&P 500.

As you’ll recall, the strategy starts with the understanding that while stocks can be one of the best performing asset classes over the long term, they can be extremely volatile in the short term. 10%+ corrections and 20%+ bear markets can happen, have happened, and likely will happen again.

That’s why we try to help you isolate most of your stock market risk to Bucket 3 with a 15+ year time horizon and use the other buckets to help buffer against that potential market volatility.

  • The Lifetime Income Buckets goal is to provide consistent form of income no matter what the stock market is doing.
  • Bucket 1’s goal is to be a conservative source of additional income for the first 5-7 years of retirement and to “buy time” for Bucket’s 2 and 3 to potentially grow.
  • Bucket 2, which typically has a 5-7 year time horizon before being tapped for income, is fixed or balanced to provide moderate growth potential while helping buffer against stock market risk.
  • And it isn’t until those Buckets are in place that we typically recommend allocating money to Bucket 3 for long term growth potential.

So, “what should you do now?” you might ask.

If you have been following and reviewing your personalized bucket strategy with your advisor each year, then the likely answer is to simply continue doing that.  Since your long-term strategy anticipated market volatility, there shouldn’t be a need to react to short-term volatility.

If, however, you’ve chosen to be more aggressive than the strategy recommended, particularly with outside accounts that you self-manage, like 401(k) plans, then you might want to schedule a review with your advisor sooner rather than later.  Your more aggressive choice may have allowed you to capture more of the market upside in 2019, but it might also mean this a good time to make some adjustments.

Important Information:

The information provided should not be considered specific tax, legal, or investment advice and is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. This material was gathered from sources believed to be reliable, however, its accuracy cannot be guaranteed.

Different types of investments and/or investment strategies involve varying levels of risk, and there can be no assurance that any specific investment or investment strategy (including the investments purchased and/or investment strategies devised by Lucia Capital Group (“LCG”)) will be either suitable or profitable for a client's or prospective client's portfolio, thus, investments may result in a loss of principal. Accordingly, no client or prospective client should assume that the presentation (or any component thereof) serves as the receipt of, or a substitute for, personalized advice from LCG or from any other investment professional. You should always seek counsel of the appropriate advisor prior to making any investment decision.

S&P 500 Index is an unmanaged index and includes a representative sample of large-cap U.S. companies in leading industries. An investment may not be made directly in an index.

Raymond J. Lucia Jr. is chairman of Lucia Capital Group (“LCG”), a registered investment advisor and CEO of its affiliated broker-dealer, Lucia Securities, LLC (“LSL”), member FINRA/SIPC. Advisory services offered through LCG. Securities offered through LSL. Registration with the SEC does not confer any certain level of expertise or training. Rick Plum is a registered representative of, and offer securities through, LSL. Rick Plum also offers advisory services offered through LCG. Mark Scalzo is the chief investment officer for LCG and a registered representative of LSL.

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