Don’t Sweat The Downturn: The Wells of Wealth And Market Volatility

2000, 2008, 2020 and 2022: What do all these years have in common?

If you said those were years in this century when we’ve had volatility in the financial markets, you are correct. In 2000-2002, during the dot-com correction, the S&P 500 went down 49% over a three-year period. When the housing bubble burst in 2008, the S&P went down 51% over a 16-month period. And in 2020, at the beginning of the COVID-19 pandemic, the market went down about 35% in one month. Only a few years later, 2022 was another losing year for the market with an 18% loss for the S&P.¹

Periods of economic uncertainty are never easy, especially if you’re close to or entering retirement. Today’s economic environment, and the media coverage of it, can be scary, but instability and downturns don’t last forever. This is the type of situation bucket planning is designed for.

Time-Segmenting Your Assets

You’ve spent years saving money and planning for retirement, with certain dreams and goals in mind for when the time comes to tap into those resources. So how do we plan to help safeguard those assets from this type of volatility in the market?

At Chamberlin, we use a time-tested strategy that simplifies planning. It does this by categorizing your wealth into three essential "wells"  based on when you need the funds. This is called the time-segmentation of money, and it equips you with the resources required to maintain growth, income, and long-term financial stability.

Our CEO, Don Chamberlin, started our company in the early 2000s when the market was down, and one of the main reasons he decided to go the independent route was to better protect his clients from market downturns. We've been using time-segmentation, which is also referred to as "bucketing," to protect our clients’ money since then, and it really can be one of the most protective ways we know of to shield our clients’ portfolios while still having a strategy for accumulation of assets over time.

The Wells of Wealth

A time-segmented strategy should have three different  buckets of assets, each with a different mix of investments with different degrees of exposure to the ups and downs of the market.

1. The Liquid Well

This first Well is your emergency fund of 6-12 months’ worth of income. The investments here should be safe and accessible — checking and savings accounts, for example. This Well is for your immediate or emergency needs, and because it’s meant for use and not for growth, those funds will be liquid and stable.

2. The Conservative Well

This intermediate Well is designed for growth, but still with an eye for use in the nearer term. For that reason, there will be some exposure to market swings, but the goal is to preserve and support your income by outpacing inflation and coming in predictably the way you’ve come to expect over the years.

“This is your income bucket, and what's going to happen is these assets are typically going to be more conservative,” Chamberlin founder and Certified Financial Fiduciary® Don Chamberlin says. “Conservative assets wouldn't include things that are super volatile. They're going to be something that doesn't necessarily move if the market goes down.”

3. The Growth Well

The last segment is your backstop against volatility. Over the long term, as markets correct, recover and start moving in an upward direction again, your assets in the Growth Well have a chance to also recover and time to re-accumulate whatever was lost during a downturn. For that reason, the assets in your Growth Well should typically be invested with the goal of maintaining 10 years’ worth of income or staying untouched for 10 years or more, if possible.

Building Your Plan With Chamberlin

Clients come to Chamberlin with a whole spectrum of existing retirement assets and plans, but many have Liquid and Growth Wells without a plan for the in between.

“The first and third Wells are key to really having a good strategy to avoid market volatility,” Don Chamberlin says. “When we have short-term, or even long-term, volatility in the market, what happens is that clients with a holistic, time-segmented strategy are able to say, ‘My income's still coming out just like my paychecks were, because we set up 10 years’ worth of income to have that coming out.’

And they're all set with that income, right? It's good. They're going to get a paycheck just like they did when they were working. And the Growth Well might have gone down over here, but they have the peace of mind of knowing they’re not taking a double hit of withdrawing money from a place where assets are going down because we've got it set up more conservatively in the other two Wells.”

Taking the Next Step

Keeping up with financial news these days can be unnerving, especially if you’re close to or entering retirement. There’s so much uncertainty and change in the economy right now, reflected in sudden market declines and rebounds. But instability and downturns don’t last forever. This is the type of situation the Wells of Wealth are designed for.

Chamberlin is here to help you navigate the options and create a plan tailored to your needs, goals and dreams. Visit our online Learning Center for more resources on holistic retirement planning, and Schedule a Call Today and take the first step toward a confident financial future.

Sources:

¹  Macrotrends. S&P 500 Historical Annual Returns. https://www.macrotrends.net/2526/sp-500-historical-annual-returns