Broker Check

Is your principal at risk?

March 25, 2020

While we have been worried about being infected with the COVID-19 virus we are also worried about our jobs, our 401Ks, our savings, basically about our financial well-being.

Officials tell us we need to flatten the curve with this virus so that our healthcare resources are sufficient to treat everyone.



So how do we “flatten the curve” per se, with our finances?

The image does not exactly reflect it but the translation to our finances would be: give up some of the gains to protect the principal against negative market performance.


Assuming this strategy is based on the S&P 500 index* with a cap of 5% it would look like this:



That means, when index performance is negative your account does not lose value and when the index performance is positive your account grows by up to 5%. (Please keep in mind that this is a hypothetical example so don't get stuck on numbers, rather focus on the concept.)


Now that we experienced a fast decline in the markets most investors’ focus shifted from 'how do I maximize the gains in my portfolio' to 'how do I protect what I have accumulated'.


The above example is one of the available tools that we can utilize in constructing your portfolio. Everyone’s goals, time frame and risk tolerance is different so there is no “one size fits all” solution.


This is not about certain investment vehicles, it's rather about risk management. As legendary football coach Paul “Bear” Bryant famously said, “Offense sells tickets. Defense wins championships.” Is it time for you to play defense?


Please email or call me to discuss your financial game plan.


By the way, stay tuned about upcoming webinars!

 * Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing.