David, Michelle and I are seeing some common trends across our discussions with clients about the economy. We have all encountered fears about markets (which are to be expected); however, some clients have expressed the fear that a portfolio can "go down to zero." I found my initial explanation - that it is not possible - simply wasn't good enough. So I took it a step further.
Our portfolios are diversified into domestic and international mutual funds, containing stocks, bonds and REITs (Real Estate Investment Trusts). In each case, we achieve ownership in thousands of assets. Altogether, clients own positions in:
· Approximately 16,000 stocks in nearly 40 countries worldwide
· Well over 20,000 properties in nearly 20 countries worldwide
· Numerous positions in domestic and international government and corporate bonds.
For the entire portfolio to drop to zero, we would have to see practically every company in the world go out of business, all property would have to be worthless and numerous governments (including our own) would have to default on all bonds. As David put it, "we would essentially return to hunting and gathering to survive."
I thought to share this because it is a common misconception. It is a good example of the kind of fear that is factoring into the current market drop. This is a very scary time. If some of our clients have these fears, how many investors without financial advice share these concerns? As I have heard David say many times, "It's times like these that stocks are returned to their rightful owners, long term investors like you and me."