Upticks: Four Ways to Not Lose Money

By Jake Falcon on August 12, 2021

With the market at all-time highs, clients have been worried about a market pull back and losing what they’ve made. On this week’s episode of upticks, Jake covers four ways to protect yourself and your investments.

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For today’s topic, I want to talk about how to not lose money. As of the recording of this episode the DOW is around 35,000 and the S&P is well over 4,000. Many of our clients have been asking, “Jake, your returns have been great the last few years, so how do we not lose what we’ve made?”

So here we go starting with number 4.

4 – Don’t invest money

It may be obvious, but a simple way to not lose money is to not invest it. Instead of investing in an asset that has any amount of market risk, deposit it in a bank with FDIC insurance or bury it in your backyard (this is a joke).

Although you still could be losing money by doing that. Watch episode #155 of Upticks here to find out why.

This is the simplest way to not lose money, but you will not make much money this way either. We do not recommend this method.

3 – Diversify your portfolio

Interestingly, some of our new clients think that when someone says “don’t put all your eggs in one basket” they mean that they need more than one advisor. That is not what we mean by the saying. “Not having all your eggs in one basket” means not loading all your assets into one investment like a single stock, bond, or cash, etc.

If you have multiple advisors, you are not more diversified. If you hire two advisors, they may not be working together. You could be doubly invested in some areas and be less diversified than if you had only one trusted advisor. Your portfolio would have two halves that cannot see each other, and no one could review the full picture quarterly and adjust it for diversity.

By diversity, I mean having multiple stocks and bonds, of different types, sectors and sizes, international stocks and bonds, treasury notes, commodities – the list could goes on.

All these assets have different correlations between them. Having a variety helps us dampen short-term market volatility. When we are diversifying for a client, we are looking for a negative correlation. One investment goes up, another goes down.

Say you have 35 stocks in your portfolio. On the year, 32 of them are up and 3 are down. That is okay. It means you are diversified. Believe it or not, you typically do not want all your stocks to be up at the same time. If they are, they might have a positive correlation. They all go up together, but they all may go down together too.

I often joke that being diversified is always having to say you are sorry. If you are diversified, I would hope that some assets will be down at any given time, but the hope is that more assets will be up.

At Falcon Wealth Advisors, we use Bloomberg software to aid us in making diversification decisions.

2 – Sell high, and buy low

Many people think a way to cut their losses is to sell a stock while it is down. However, if that stock has strong fundamentals and we can see a bright future for them, that is the worst thing you could do. You want to buy those companies when they are low, not sell.

Having a wealth advisor is helpful in these situations. Getting emotional when a stock is going down and selling it, locks you at a loss depending on what the purchase price was. As wealth advisors, we simply rebalance when things get out of sector waiting.

What does that mean? We have a 5% threshold on portfolio allocation. For example, imagine you had half your money in stocks and the other half in bonds. If the stock market does well and your portfolio becomes 55% stocks, we sell those shares while they are high to lock in gains. We use those gains to buy stocks or bonds that are priced low but have potential.

We do this to prepare for when the market pulls back again. We have already locked in a gain while it was high. Rebalancing is very important to what we do at Falcon Wealth Advisors. Some firms rebalance using a time frame (for example, quarterly). We do it based on market movements because we feel it is a more effective way to capture selling high and buying low for our client’s portfolios.

If your 401(k) has a rebalancing feature, I recommend you take advantage of it. It will help protect your nest-egg as you save for retirement.

Regardless of using a time frame or allocation weighting we feel confident that rebalancing is a much more prudent way to invest vs. not.

1 – Don’t let emotions dictate investment decisions

Keep a level head while investing. Do not fire off and sell everything or invest based on emotions. Emotions are not bad but responding to emotional triggers poorly could cost you thousands and thousands of dollars. We have seen a few clients make an irrational decision and cost themselves a portion of their future.

Think about it like this: have you ever been stuck in traffic, and you decided to honk your horn at someone driving erratically? You are responding to your emotions and only seeing the situation through your own lens. We do not give that person the benefit of the doubt, but we should.

Most of the time when I react and honk the horn, I feel embarrassed. I responded to my emotion and reacted to a short-term emotional moment.

This is just a small example, but it is why clients rely on us. We will not get emotional and make a rash decision. We take your investments very seriously. We use facts and research, math, and a moment to remain calm to make good fact-based decisions for your portfolio.

Protect yourself and your family by not reacting to emotions when it comes to your investments.

Please contact me with any questions or comments on this week’s topic. I would be happy to schedule a time to discuss anything covered in this edition of Upticks with you. Email me at jake@FalconWealthAdvisors.com.

Clients choose to work with us to enhance their financial literacy and explain exactly what their financial plan means to them.

-Jake Falcon, CRPC®