The S&P 500 recently breached bear territory, which is largely agreed to be a market that has dropped 20% from a recent peak. The “bear-market bounce” is real - Every where you turn, from friends and colleagues to cable news shows, you can find someone with a strong opinion about the financial markets and what will come next.
It’s important to realize that downturns are not rare events: Typical investors, in all markets, endure many of them during their lifetimes. Even knowing this, it can be unsettling to witness the decline of your portfolio during one of these events. After all, that account balance is more than a number—it represents very important personal goals, such as the ability to retire comfortably or to provide a quality education for family members.
When market conditions jeopardize those goals, you may feel compelled to do something, such as sell most of or all your investments. You may assume that converting to cash will give you a better long term result than staying invested. But such action would shut you out of the strong recoveries that have historically followed market downturns.
Remember that bearish market conditions—while inevitable—don’t last forever. There have been 26 bear markets in the S&P since 1928. The average length of a bear market? 289 days or about 9.6 months. The average length of a bull market is 991 days or 2.7 years.
Remove yourself from external stimulus: Find yourself doom scrolling through Twitter? Checking your portfolio every day? Or opening MSNBC? Try turning them off. If you’re invested for the long-term, what you see today, tomorrow, or next week will not significantly impact your strategy – so don’t give it the attention it doesn’t deserve.
Get your ducks in a row with your emergency savings: In the chance you’ll need it, now’s the time to boostit up to levels that can sustain you for 3-6 months. Turn on automatictransfers or increase the amount being transferred.
The key is to have a game plan before the next market pullback so you’re well positioned to try to take advantage of the opportunities that follow. We can develop a plan now that prepares you and your portfolio for financial system shocks, whenever they happen to occur. That means focusing on the factors of your investing strategy we can control (including things such as asset allocation and costs)and not worrying about those things out of our control.
Downturns come and go. The results of a well-designed and faithfully followed plan, on the other hand, can serve you the rest of your life.
Collabria Capital, Inc. is a San Francisco-Bay Area fee-only fiduciary financial planner& investment manager providing wealth management services to clients locally and virtually throughout the US.
Paul Saad, Co-Founder at Collabria Capital, Inc, is a CERTIFIEDFINANCIAL PLANNER™ (CFP®) focusing on comprehensive financial planning, personalized investment management, and equity/variable compensation.
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