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How To Prepare For A Market Downturn

| May 04, 2019
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You may not chart your retirement account or review stock market updates regularly, yet chances are you still noticed that 2017 was a banner year for stocks. And 2018, while slightly more suspenseful, continued to doll out record highs and carry on the longest running bull market in history.

The rule remains, what goes up must come down. Such market fluctuations and volatility are normal and even expected processes of the economic cycle. Unfortunately, in the last couple of decades, there have been several consequential downturns that set many people back in their retirement plans. And there is a good chance watching this recent market roller-coaster ride has left you wondering what you can do to better prepare your finances for a downturn. Here are some financial principles that have stood the test of time and are sure to help keep both your money and your emotions in check when the market takes a turn for the worst.

Protect Your Investments

Navigating market volatility well can be the difference between living comfortably or just scraping by in your retirement years. Facing a decline in the early years of retirement can be devastating. While we can’t predict exactly when a bear market will hit or how long it will last, historical data tells us that bear markets occur approximately every five years. (1) That means there is a good chance you could experience a down market in the first five years of your retirement. The following strategies won’t eliminate loss entirely, but they may provide a buffer against the natural ups and downs of the market.

Keep An Eye On Your Emotions

One of the most important rules in investing is to refrain from making decisions based on emotion. Multiple studies have analyzed how our emotions affect our investing results, especially when we chase above-average returns. A 2015 DALBAR study revealed that investors’ decisions were the biggest reason for underperformance. (2) Simply put, behavioral biases lead to poor investment decision-making.

It’s easy to become emotionally swept away when the market negatively wreaks havoc on your finances. But if you stay true to your investment strategy and avoid making decisions when emotions are running high, you can at least avoid running the risk of losing even more. As long as you have created a disciplined financial plan and are rebalancing your portfolio regularly, you are doing your part to prepare. Your number-one priority is to protect your principal, so don’t gamble with your investments when the market is struggling.

Maintain Proper Asset Allocation

We’ve all heard about the importance of diversification when it comes to maximizing our investments. But as you get closer to retirement, it’s even more important to make sure you are investing in the right types of holdings. This is the time to reduce your risk and ensure that you have the right asset allocation. In this way, you can minimize the impact that any single losing investment can have on your overall portfolio performance.

Rebalancing is also a key factor in keeping your portfolio safe. It’s not enough to create proper diversification and just walk away. You need to regularly analyze your portfolio to ensure that it still reflects your appropriate level of risk and that you haven’t become too reliant on any one asset category.

Create A Cushion

This strategy is all about being conservative. While cash investments may not provide a lot of growth, having a cash contingency fund with at least one year’s worth of living expenses will protect you against having to sell investments at low values to free up cash. Examine spending patterns and find ways to invest even more into cash or cash equivalents, such as short-term bonds, certificates of deposits, or Treasury bills.

Work With Your Advisor

The only long-term guarantee in investing is that there will be short-term fluctuations. We’ll experience bear and bull markets in the decades ahead just as we have in the decades past. Rather than fear change, focus on preparing for it.

Here at Harbor Wealth Management, we know that using a disciplined approach, focusing on the long term, and working with an objective advisor who understands investor behavior is the best way to keep your retirement plan on track and work toward your financial goals. Our goal is to address these areas with excellence in order to help secure your future. Send Jeremy an email at jeremys@myharborwm.com or call our office at 985-605-7185 so we can discuss how to protect your finances from loss, even when the market experiences a downturn. In a time crunch? You can easily click here to schedule a phone call now!

About Jeremy Smith

With nearly two decades of experience in the financial services industry, Jeremy Smith serves as a dedicated and knowledgeable financial advisor and the founder of Harbor Wealth Management. He specializes in serving retirees, pre-retirees, small business owners, and widows, providing a comprehensive array of investment management and financial planning services. Jeremy aims to serve his clients as a financial guide who is here for their every need, helping families find lasting plans so they can focus on what matters most to them. To learn more about Jeremy, visit www.myharborwm.com or connect with him on LinkedIn. You can reach Jeremy directly at jeremys@myharborwm.com or by calling his office at 985-605-7185.

Securities and advisory services offered through LPL Financial, a registered investment advisor.  Member FINRA/SIPC.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. You should discuss your specific situation with the appropriate professional.  Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Asset allocation and diversification does not protect against market risk.

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(1) https://www.reuters.com/article/us-column-jarvis-bearmarket/what-a-bear-market-means-for-retirement-savings-idUSKBN1JN16D

(2) http://www.advisorperspectives.com/commentaries/20150408-streettalk-live-dalbar-why-investors-suck-and-tips-for-advisors

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