The first three months of this year have been volatile for the stock market. Do you remember the game back in the 70’s and early 80’s called Pong? I played it on my Atari. It was so addicting but the whole game was just a ball bouncing back and forth. This is exactly what is happening in the stock market today. A lot of back and forth. Is this volatility causing you to lose sleep? If it is, here are some things to think about:
Over the years, I’ve spoken many times about the “Bucket Strategy.” In this method you have three buckets of money, with three separate methods and goals for each.
In the first bucket, you hold cash or cash like instruments for any income needed over the next possible 2 years or maybe 3 years. If the market goes down, you are not forced to sell in a down market because you have the cash available. Do you need any of your money that is currently invested, either immediately or in the next year or two? If you do, then most likely you should not have that money in the market and move it to your “first bucket.”
The second bucket is your 4 to7-year timeframe. Here you have income producing assets like bonds, dividends, and rental income which generally provides income but also allows for some moderate growth.
Finally, the third bucket is for the long run, 7 years and beyond. Here you want to have aggressive assets like growth stocks that may be volatile over the short term, but they tend to outpace your other buckets with greater returns over the long term.
Having your money diversified across different timeframe buckets keeps you aligned with your goals. Therefore, this may help provide you with peace of mind and a good night sleep even during periods of volatility.
Spencer Neal, AIF®, C(k)P®