Your Risk Capacity

July 22, 2018
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What this term really means is what is your capacity to suffer losses.

FACT #1: Since 1980, the average annual intra-year drawdown is 14% for the S&P 500.

INSIGHT: It has been a few years since this has happened so PLEASE do not project the current low volatility environment into the future.

HOMEWORK: Take the value of all of your liquid, stock investments and SUBTRACT 14% from that value.

REACTION: How do you feel knowing this drawdown is a normal occurance?

FACT #2: Historically, the avearge bear market lasts 1.4 years with cumulative LOSSES of 41%.

INSIGHT: It has been 10 years since the Global Financial Crisis, but as we learned in Econ 101 the economy and markets are cyclical so there WILL BE ANOTHER BEAR MARKET.

HOMEWORK: Take the value of all of your liquid, stock investments and SUBTRACT 41% from that value.

REACTION: How do you feel knowing this is the average drawdown is a normal bear markets?

More homework. With the above in mind, if you need to make adjustments to your weighting in stocks based on the above excercise, NOW is the time to do it. Do it when you want, not when you feel you have to take action.


Stay Tuned, Disciplined & Patient! {TJM}

The Investor & Character Equation (ICE) | S + R = O


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