How do I safely navigate turbulent markets?
“A couple years of calm can lull less seasoned investors into thinking that calm is the new normal. Of course it is not.”
Information provided reflects the author’s views as of [02/2019]. Such views are subject to change
All investors dislike market turbulence, but market veterans know that it is a given and understand that when it comes, it will pass. Not only do most develop a tolerance for it, but the best among them also have a plan for weathering temporary downturns.
On the flip side, a couple years of calm (see 2016 to 2017) can lull less seasoned investors into thinking
Let’s begin with
WHAT’S A BEAR MARKET, AND HOW DOES IT DIFFER FROM A CORRECTION?
Bear markets, on average, occur once every 3.5 years and last 367 days. They begin after prices have fallen 20 percent or more from their 52-week high. For example, the Dow Jones Industrial Average hit its record high of 26,828.39 on October 3, 2018. If it fell 20 percent
HOW WELL WILL YOU TOLERATE MARKET TURBULENCE?
This is where your “navigator,” i.e., your advisor, comes in. As experienced advisors, we know there is an art to understanding each investor and his or her tolerance for turbulence. An effective advisor accurately assesses each client and
WHAT IS A GOOD PLAN?
We think a good plan should have provisions for getting through adverse market periods, including:
Asset Allocation and Location*—
Allocation is designed to give your portfolio a variety of complementary investments that provide diversity in their nature and underlying drivers. Location means you have assets in different types of accounts—retirement, trust and so on.
Clarity for Your Income/Cash Flow Needs and Spending during Turbulent Markets—You have cash needs each year, scheduled and unscheduled. Building in conservative instruments that mature each year (at various
Regular Rebalancing—In down markets, your portfolio’s stock portion may shrink, moving it away from its target allocation.
Dollar-Cost Averaging (DCA)*—Continue regularly scheduled cash savings, even when stocks are plummeting. Saving creates an opportunity for these new dollars to fulfill the quintessential market mantra: Buy low
To sum up, acceptance of market turbulence, combined with a good advisor-developed plan, will help you navigate markets at a risk level you can tolerate. But at the heart of it all is this goal: Have a plan and stick to it.
Securities offered through Royal Alliance Associates, Inc., member FINRA/SIPC. Investment-advisory services offered through SEIA, LLC. Royal Alliance Associates, Inc.,