Summit Capital: Why Stop-Loss Portfolios Matter

(Summit Capital) In 2020 the S&P 500 index experienced the fastest 30% sell-off ever, exceeding the pace of declines during the 2008 Crisis and even the Great Depression. It took the S&P 500 only 22 trading days to fall 30% from its record high on Feb. 19, making it the fastest drop of this magnitude in history, according to data from Bank of America Securities. The second, third and fourth fastest 30% declines all occurred back during the Great Depression era, 1929 through 1934 respectively.

2020 also marked the fastest market recovery in history. On August 18th the S&P 500 index recorded a record close making it the quickest recovery from bear-market territory in its history, according to Dow Jones Market Data.

During this historical decline and recovery were your clients invested in strategies designed to help automatically mitigate large market losses without having to contact you about making a change in your investments? During a major market correction, many investors don’t sell their equity investments soon enough, thereby suffering losses. And as the market recovers, they often times wait too long to re-invest back into the market wand miss out on opportunities for gains.

Emotional Investing

Emotional and behavioral drivers are notorious for pushing many individual investors into poor results. All investors like to buy low and sell high, but this does not happen for many investors, who must instead suffer the consequences of buying high and selling low. Capital appreciation is an important part of investing, but of equal or greater importance is reducing losses.

Want to know more about how to protect your client relationships from the strain of deep declines? Start your due diligence on Summit right here.

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