Amidst all of the frenzy on Wall Street and Capitol Hill, it’s easy to forget that the third quarter now is over, and in about a week or so investors will be receiving their 401(k) and other financial statements.
To this I say — get ready for a huge dose of "statement shock."
You are likely going to be in for a rude awakening, especially if you’ve been following the buy-and-hold recommendations of most financial advisors. You see, it’s not just the major market averages that have seen a huge decline in Q3.
If you own municipal bonds, high-yield closed-end funds, individual stocks, mutual funds, or just about any financial instrument, you’ll likely be staring at some really big losses.
These big losses are likely to lead to a wave of shareholder redemptions, as investors run for the exits. Unfortunately, this means a much longer road to recovery for the equity markets.
Statement shock leads to redemptions, and redemptions mean selling pressure — and that means lower equity prices.
My friends, it’s a vicious circle, and until that circle is interrupted, a safety-first mindset is your greatest ally.