Friends,
Roughly 113 years ago, The Titanic set sail on her maiden voyage across the Atlantic. Countless ink has been spilled retelling this story, but there's one aspect we'd like to cover here: of the 2,224 souls on board, only 32% survived.
It didn't have to be that way.
- A safety net: The Titanic's owners decided against providing enough lifeboats to accommodate everyone on board. The reason: they would take up so much space it would make walking the deck less enjoyable.
- A plan: The crew and passengers also failed to practice for (or even review) what to do in case of an evacuation.
The results were deadly.
These two simple moves -- more boats and a plan -- would have saved hundreds of lives.
This past Monday, the stock market experienced its worst returns in three years. The NASDAQ has fallen by nearly 15% in less than one month's time. Many of the high-flying stocks of January have registered enormous losses.
The parallels to the Titanic are clear.
- A safety net: If you need cash in the near term, keeping it in cash is the safest thing to do. And if you've already hit your "retirement number," allocating to boring (less volatile) stocks makes a lot of sense. Yes, you'll be giving up potential gains. But you'll be guaranteeing yourself as a lifeboat in return.
- A plan: If you wait to create a plan until you're in the moment, emotions take over. And in the investing world, emotion-driven decisions rarely work out well. That's why it's important to create a plan for exactly what you'd do in case of a market downturn.
More than anything, we hope the past month has been an opportunity to learn. It's hard to know how you'll react to volatility until you're in the middle of it. If you're reading this, the exercise (unlike the Titanic's) hasn't killed you.
Take what you've noticed. Apply it to the future. Create a safety net and a plan. We're 100% certain that when the next bout of volatility returns, you'll be much better off for having done so.
Wishing you continued investing success,
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Brian Feroldi, Brian Stoffel, & Brian Withers
Long Term Mindset
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