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What If You Were Down 27%?

The Dow Jones industrial average (DJIA) rose 72.37 points, or 0.4%, to 16,576.66 on the last trading day of 2013. For the year, the index of blue-chip stocks was up 26.5% — its best performance since 1995.   The media, can sometimes be our friend or our foe.  Unfortunately, because our lives are so busy we often just get snippets and sound bites of information about our investments and money issues.   When you hear the DJIA had a banner year, your first thought is often “did my investments do as well as the stock market?”

Most investors have a very short memory of their original risk tolerance, goals, or objectives when they start analyzing returns on their money.   Without setting proper expectation, banner years in the stock market like 2013 can send you into the depths of unhappiness because you may feel you missed out on a golden opportunity.  However, what happens if you were down 27% or even 33.84% as was the case in 2008?   Wouldn’t you be upset that your money wasn’t in something more conservative that prevented you from those big losses?

Invariably, we want what we want as human beings.   We want the no way to lose money investment that will make us 10% or more each and every year and it simply doesn’t exist.  This is why when you create an overall investment game plan by yourself or with a financial advisor, you should be painfully aware of the risk vs. reward you are taking with your money and what goals, risks, and assumptions you are using for a desired outcome.

For example, if you are trying to preserve capital and you earned 7% on your money in 2013, do you really care what the stock market did?   If you took a balanced approach of U.S. Stocks, international stocks, real estate, bonds, etc. and you earned 13% in 2013, are you truly unhappy with the outcome even though the Dow Jones had a banner year?   Was your original goal to beat the US Stock market?  Was it to beat the international stock market?  Was it to achieve a level return to meet your retirement goals?  It’s truly important that you are clear on your own expectations or otherwise you’ll send yourself into a state of misery worse than James Caan having to deal with Kathy Bates.

Here are a handful questions you might want to be asking yourself around your investments going into 2014 because we all love to make money, but nobody likes to see their investments go backwards.

  • How much risk am I willing to take? Am I hoping to make 27% knowing that I could lose 27%?
  • What real rate of return am I looking earn and will be ‘happy’ with if results are achieved?
  • Do I need to consider tax management throughout my strategy?
  • What is the benchmark that really matters for my overall investment portfolio?
  • Am I buying the same investments in my 401(k) as I am with my regular investments?

I’m sharing this blog because investors often have a short memory.  It’s the age old adage of greed and fear being the two drivers of how people manage their money.   The market has had a five year run and nobody can tell you for sure how long this will last.   From 1991 to 1999, the DJIA had a 9 year run.  From 2000 to 2002 the DJIA had a three year negative run.     Nobody has a crystal ball, but it is a good time to get your expectations reset about where you are currently with your investments and what your expectations are for the future.  Otherwise, you may end up getting caught in that nasty game of Blackjack where you actually believe you can beat the house.   We all know how the plotline of that story goes and it usually doesn’t end pretty.    The house wins!

Written by:
Ted Jenkin

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About the author  ⁄ Ted Jenkin @ Your Smart Money Moves

Ted Jenkin @ Your Smart Money Moves

Hey!

My friends and family all think I’m a workaholic, but I say I’m just a guy that loves to help people do better in life.

My mother is still the only one that calls me by my real name Theodore Michael, my wife calls me Teddy, but for the rest of you it is just plain old Ted.

Ever since I was a little kid, I always loved money and being an entrepreneur. In fact, I still have cassette tapes of me talking to my grandmother at the age of five and my mother tells me all the time how much I played with money as a kid...

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Ted Jenkin is a frequent guest columnist for the Wall Street Journal and Headline News Weekend Express. He is the co-CEO of oXYGen Financial. You can follow him on LinkedIn @ www.linkedin.com/in/theceoadvisor or on Twitter @tedjenkin.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. oXYGen Financial is not affiliated with Kestra IS or Kestra AS. Kestra IS and Kestra AS do not provide tax or legal advice.

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor regarding your individual situation. 

Background and qualification information is available at FINRA's BrokerCheck website.

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