Why This Matters
The point here is to set expectations and to understand how the targeted fund gets built, given that you do not control the direction of financial markets.
The practical point here is that it is a very good idea to check when the market is DOWN, to take your own pulse. It is not enough to say, after the market recovers, to say “it all works out.” That is fine, only after the fact, which entirely presumes that the market is higher when you state this.
The real problem in financial matters is that these combinations of events don’t jive your real-life experiences. For example, let’s say you require expensive roof repairs to your house. Is that usually when you have an extra amount of spare cash around? Eh, maybe.
The issue is that if the markets are down, and that is combined with financial stress, this effectively makes you a “seller at the low,” because you might need to liquidate holdings/receive distributions at precisely the wrong time. This is, then, “Murphy’s Law.”
Either:
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You have prepared spare cash to accommodate this combination.
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You have lowered your expenses (this is part of the “4% rule” which has been modified to be the “3.3% Rule.”).
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You have adjusted your overall investment strategy to accommodate for this.
The good thing about financial markets is that if your situation fundamentally changes, then you can make adjustments. The reason that people don’t? Because they don’t know what they own. Now, a very basic way of showing you.