Over the last 20 years the S&P 500 has been down over 50% twice. Many investors do not consider the potential devastation this kind of correction would have on their financial lives.
Bonds Are Not A Safe Haven
Interest rates are at historic lows, if rates were to rise it would devastate portfolios and undermine the ability of bonds to protect capital.
It Can Take a Long Time to Recover
When markets drop 50%, simple math tells us investors need a 100% return in order to break even. Based on past behavior, most investors seem unable to withstand the emotional and financial devastation that these events may bring. During these types of events capital preservation is imperative to being able to participate in future bull markets.
If your portfolio doesn’t survive the bear markets it can’t take advantage of the next bull market.
3 Common Mistakes Investors Are Making
And How to Avoid Them