How To Prepare For A Market Downturn

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By Brett Gottlieb and John Mc Kean

Even if you don’t regularly review stock market updates or chart your retirement account progress, you probably noticed that 2017 was a banner year for stocks, and 2018, while more of a nail-biter, still gave us record highs and the continuation of the longest-running bull market in history.

These market fluctuations and increased volatility are normal and expected parts of the economic cycle. What goes up must come down. In the last couple of decades, there have been several significant downturns that set many people back in their retirement plans. In light of the recent market roller-coaster ride, you may be wondering what you can do to prepare your finances for a downturn. Here are some time-tested financial principles that will help you keep your money and your emotions in check when the market takes a turn for the worse.

Protect Your Investments

Market volatility can mean the difference between living comfortably in retirement or just scraping by. Facing a decline in the early years of retirement can be disastrous. 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 emotional decisions. 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 get swept away emotionally 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 won’t run 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 one 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 past decades. Rather than fear change, focus on preparing for it.

By using a disciplined approach, focusing on the long term, and working with an objective advisor who understands investor behavior, you can keep your retirement plan on track and work toward your financial goals. At Comprehensive Advisor, our goal is to help secure your future. Email us at info@ComprehensiveAdvisor.com or call (760) 813-2125 to set up a complimentary consultation so we can discuss how to protect your finances from loss, even when the market experiences a downturn.

About Brett and John

Brett Gottlieb is the founder of Comprehensive Advisor and a financial advisor with nearly two decades of industry experience. He graduated from California State University-Chico with two bachelor’s degrees in Business Administration and Economics. Brett is Life Insurance licensed in several states.

John Mc Kean, financial advisor, joined Comprehensive Advisor in 2016. He has been in the financial services and retirement planning industry for over six years. John is Life Insurance licensed in California.

Brett and John previously worked as Registered Representatives with Securities America, one of the largest independent broker/dealers in the country, and currently offer advisory services through Legacy Road, LLC, a Registered Investment Advisor. Both are passionate about educating clients on retirement planning. They take a common-sense approach to the planning process and work with clients to create a retirement road map to help ensure their assets are protected and they receive the income needed to enjoy their future. Based in Carlsbad, California, they work with clients throughout San Diego County. Learn more by connecting with Brett on LinkedIn or email them at info@ComprehensiveAdvisor.com.

Advisory services offered through Legacy Road, LLC, a Registered Investment Advisor.

Brett Gottlieb, Investment Advisor Representative. California Insurance License #0C68886.

John Mc Kean, Investment Advisor Representative. California Insurance License #0K37445.

Comprehensive Advisor and Legacy Road, LLC are not affiliated.

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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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