Earthquake Proofing Your Financial Future
Last June 2019, my wife and I decided to earthquake-proof our home. It was not cheap, and it was time-consuming selecting a contractor. Since then, we have at least had four to five measurable earthquakes in the Los Angeles area. Are we happy we did it! Yet bet your ass, we are delighted. I am telling you this because it reminds me of how long-term investing works. We Californians live here knowing that earthquakes happen almost every day. But we don't know when the Big One will hit. Earthquakes are an excellent example of explaining the difference between frequency vs. magnitude in investing. The present case today is the Covin-19 pandemic is an earthquake that has shaken the world to its human foundation. It has rocked the U.S. and the rest of the world like no other world event. Back in September 2018, I informed my clients that we needed to reduce our holdings in stocks. I started keeping 80% in cash and short-term Treasurys. Lots of my clients asked me why I am doing this drastic change. I explained that I was an earthquake poofing their investments from a magnitude of seven quakes. I did not know back then that the Big One would come in the form of a health pandemic. The short-term results in 2019 are that I lost some clients, but I gained a lot of respect for being on the side of caution. As of today, my clients are down -2% for 2020 vs. the S&P 500 index is at -12.1%, according to Morningstar (5/4/2020). Like living in an earthquake country like California, investors must always be ready to withstand the next Big One to make it in the long-term. If you need to earthquake-proof your financial house's foundation, please email at email@example.com. Keep your social distancing, and stay healthy.