Smart Ways to React to a Market Downturn for Various Situations

What is right for you may not be right for the guy sitting next to you. In this exercise, we’ll look at a few situations. As you read through them, notice the similarities and differences, then consider which is most like you. Are you following it closely enough? If you’re not sure, give us a call and we can chat it through.

 

Situation 1

You have 10+ years until you are going to pull any money from your investments. You are confident you are in a well-diversified and smartly allocated portfolio. You have been disciplined to invest consistently and appropriately to meet your long-term goals.

Advice

  1. Ignore the headlines.
  2. Carry on with your plan.
  3. If you have extra money you want to invest, it’s probably a good time but not required.
  4. Congratulate yourself on having a plan and working it.

 

Situation 2

You are at or near retirement and market downturn has you worried about whether you are going to be able to have enough money to last.

Advice

  1. Ignore the headlines.
  2. Make sure you have a well-diversified, appropriate and well-allocated portfolio for your risk tolerance and time horizon.
  3. Understand all your various income sources in retirement (social security, part-time work, pensions, asset sales, rental income, etc.).
  4. Understand and project as best as possible your spending needs in retirement. Determine if you have enough money to last your life span and your spouse’s life span.
  1. Understand the tax situation of your investments.
  2. Put together a retirement income plan to maximize your income into retirement and improve your odds of not running out of money.
  3. Divide your money into buckets; Short-term (0-3 years), Medium-term (3-10 years) and Long-term (10+ years). For each bucket, have it invested according to when you will need to withdraw it for living expenses and other major purchases.
  4. Stay away from high-commissioned products such as equity index annuities and private real estate investment trusts. If it sounds too good to be true, it almost always is.
  5. Don’t make decisions based on fear.
  6. If you are working with an advisor, make sure you aren’t spending too much in fees, using high cost mutual funds, or paying high trading fees.

 

Situation 3

You are currently in retirement and the downturn has caused an erosion in the value of your investments and you are concerned if your distributions are sustainable.

Advice

  1. Calculate how much you are taking out as a percentage of the total portfolio. If it’s more than 5%, it’s probably time to revisit how much you are spending. If it’s less than 5%, you are likely fine.
  2. If your portfolio is broken down into buckets, meaning Short-, Medium-, and Long-Term buckets, then pay attention to the Short-term bucket. Make sure it truly is conservative and hasn’t taken a significant hit in this market downturn. If your Long-term (10+ year) money is down significantly, don’t fret. This is normal. If you have Medium-Term money, it should be down more than the short-term money, but not as much as the Long-term (10+ year) money. If this is correct for you, then you are probably well-allocated.
  3. Consider taking a break from distributions for a few months and living off savings (assuming you have them) and see if the market recovers some.
  4. Consider reducing your monthly distributions until the market recovers a bit.
  5. If you have an advisor, make sure you are not paying too much in fees and using high cost mutual funds.

Alright, now I know there are countless situations and possible reactions to market downturns, but I wanted to give you a taste of what people in various stages of life and circumstances should be considering as it relates to their investments in times when the market isn’t looking so hot.

I personally am in the ‘Long Term 10+ Year Club’ and even though my investments are down like 12% over the last 12 months, I am trying to figure out ways to get more money invested. I know that down the road, markets will be higher and at some point, this ‘not so hot’ time will be considered a good buying opportunity.

Having said this, I am not predicting we are at bottom or that the market may fall even further. I am just saying that relative to where it was in September, it is down almost 18%. I know at some point in the future, whether that is later this year or 5 years from now, the market will be back hitting new highs.

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Live Life On Your Terms

Whether you want to travel more, do things you’ve always wanted to do, or just spend more time with the grandkids, we want to be your guide to help you get there.

Live Life On Your Terms

Whether you want to travel more, do things you’ve always wanted to do, or just spend more time with the grandkids, we want to be your guide to help you get there.