The markets have dropped. What now?

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.