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Know Thyself: “Don’t Just Do Something, Stand There”

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By Khuram Ibn Sabir @ Adobe Stock

“Don’t just do something, stand there,” is one of my favorite quotes by the late, great Jack Bogle, founder of the Vanguard Group. In one sentence, you understand the emotional challenge of being a successful long-term investor. Easier said than done.

“I don’t want a repeat of 2008,” a client said to me yesterday.

“I agree,” I said.

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“What can we do to avoid it?” he asked.

“Well, for one, back in 2008 we weren’t working together. Now we are. And based on the balanced nature of your portfolio today compared to then, you don’t have all your eggs in one basket.”

And that’s the key. As we get older and we no longer have a paycheck to help “get back what was lost,” we need to be vigilant about protecting what we have. We can’t afford to see 40% of a portfolio vanish overnight.

One of the more frequent statements I hear from investors is, “I don’t understand bonds.” That’s OK. What you do need to understand is the role they play in a portfolio, especially as you shift toward income and safety.

As Your Survival Guy, I want you to think about bonds in terms of capital structure. Where are they in the capital structure of a company or the country like full faith credit Treasuries. Understand that, as a bondholder, you’re higher than the common stockholder, meaning you get paid first.

When it comes to bonds, don’t get caught up in price fluctuations. Instead, focus on the income generated by a diversified mix. Think about your margin of safety first. Then, construct your portfolio knowing what you can handle.

Action Line: Your ability to “Just don’t do something, stand there,” comes from understanding your risk tolerance. Too often, investors don’t know they’re intolerant, like a food allergy, until it’s too late. I’m here to help you understand you understand you. Email me at ejsmith@yoursurvivalguy.com, and let’s talk.

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E.J. Smith - Your Survival Guy

E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zildjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West (RIP JB) and Paris. Please get in touch with E.J. at ejsmith@yoursurvivalguy.com To sign up for my free monthly Survive & Thrive letter, click here.
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