Nearly everyone who assumes risk in virtually every daily potentially hazardous situation encounters some kind of disaster preparation. Investors, on the other hand, are often told to ignore market crashes or large investment dollar losses and wait or ride them out, because the recovery is not far off, or that somehow having the knowledge or data or expertise to avoid large losses is confused with “market timing” and is incorrect or ill advised.
The following list outlines just a few of the situations where we encounter disaster preparation — why is the high-stakes world of investing not given the same consideration? We would never tell our kids to ignore the speed limit would we?
An asset allocation or diversified portfolio can only do so much to help potentially prevent a loss. In fact modern disclaimers now state that no amount of asset allocation or diversification can prevent all loss. Here are two recent examples from Vanguard: 1. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income. Diversification does not ensure a profit or protect against a loss.
We have found from our own historical investing experience from the crash of 2007 -2009 that one of the few things that can help your money not lose value is to be out of a declining investment before the bulk of a decline or stock market crash happens. New research now confirms not only our experience, but our historical stock market research findings as well, that not only is this possible in the right environment, according to Alan Moreira and Tyler Muir form Yale University, but also that the data in fact shows that panicking and selling early, vs. late or at the bottom, or holding through it, is in fact the best course of action.1
1 Volatility Managed Portfolios, Alan Moreira and Tyler Muir, Yale University, April 6, 2016
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