| | | Yes, CEF's can have some steep drawdowns, but that's why researching them, and understanding what you own is so important. Most drawdowns are temporary and price eventually rebounds, but it's also important to have an idea of which drawdowns may be permanent. One way of gauging this is to know what the underlying assets (companies) or the fund are.
If the following are the top 10 holdings in a fund, then you have to assume the fund will act similar in fashion during corrections.
| Amazon.com Inc | $95.74M | 8.51% | | Alphabet Inc Class C | $77.54M | 6.89% | | Microsoft Corp | $70.01M | 6.22% | | Visa Inc Class A | $54.31M | 4.83% | | Apple Inc | $50.68M | 4.50% | | PayPal Holdings Inc | $45.24M | 4.02% | | Adobe Inc | $40.53M | 3.60% | | Facebook Inc Class A | $38.50M | 3.42% | | UnitedHealth Group Inc | $31.35M | 2.79% | | Zebra Technologies Corp |
The volatility will probably be more severe due to that lack of liquidity, but that can be helpful in heading in the other direction as well.
If you are selecting quality funds at good prices, then the real enemy during a correction is one's emotions. The less one knows about their investment, to more apt they are to panic and make the wrong decision.
Know what you own, and if one is worried they can't handle steep drawdowns, then don't invest in that asset class, buy what you are more comfortable owning. |
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