Are We Entering A Bear Market?
5 Steps to Consider Now
The S&P is coming off its first losing month in the last six, and the likelihood the Fed cuts interest rates this year is diminishing. A traditional definition would tell us the U.S. is still not currently in a recession, but first quarter data suggests it may be time to prepare for one and now may be appropriate to look closely at your investments.
As a seasoned financial advisor, I’ve witnessed countless market cycles, and in my opinion, we are likely overdue for a market correction. Preserving capital throughout prolonged market contractions is key to reaching financial goals and objectives. Avoiding the large drawdowns that damage portfolios and upset the applecart has been something I’ve done very well for my clients. Collectively, the single largest drawdown my clients have experienced was 7% – this includes times when the market was pulling back well into the double digits and on two occasions even -50%.
Human tendency is to examine our portfolio when markets are down. Here’s what to “bear” in mind when doing so, and will help proactively position ourselves against the coming storm:
1. Revisit Your Investment Goals
There is no better time than right now to take this opportunity to revisit your investment goals. Are they still aligned with your long-term aspirations? Consider factors like time horizon, risk tolerance, and financial objectives. If your financial advisor hasn’t reached out to you recently – or is advising you to stay the course – I’d recommend you have a serious review with another set of eyes, and quickly!
2. Don’t Let Papercuts Become Infected
During market declines, we’re going to take some losses, but we can use this time to focus on quality rather than chasing speculative opportunities. High-quality investments with strong fundamentals tend to weather downturns better. Evaluate your individual holdings, look for companies with solid balance sheets, competitive advantages, and sustainable growth prospects. Consider proactively pruning some of your portfolio, in favor of these types of companies to better position yourself when the market rebounds.
3. Don’t Sit on the Sidelines – Rebalance Strategically
Market downturns create imbalances in your portfolio that we can take advantage of. Rebalancing involves adjusting your asset allocation back to its original targets. This may be a good time to consider adjusting your allocation in favor of those mentioned above, trimming outperforming assets and buying underperforming ones can be key to an above average return for later. However, this isn’t a time to avoid taking these actions, not doing anything, and choosing to ride out the storm. Embrace the opportunities in front of you (and there are many) while also maintaining your desired risk exposure.
4. Stay Calm and Rational
Market volatility can trigger emotional responses, leading investors to make impulsive decisions. However, successful portfolio management requires a calm and rational approach. Remind yourself that market fluctuations are part of the investment journey. Avoid knee-jerk reactions, such as panic selling.
5. Diversification Still Matters
Diversification is your best defense against market downturns. A well-diversified portfolio spreads risk across different asset classes (stocks, bonds, real estate, etc.). Review your asset allocation and ensure it aligns with your risk profile. Remember that diversification doesn’t guarantee immunity from losses, but it helps mitigate their impact.
Remember, successful investing is a marathon, not a sprint. Consult your financial advisor before implementing any significant adjustments or reach out to Retirement Consultants for a free review. By following these tips, you’ll navigate market downturns with more confidence and stay on track toward your financial goals.
Disclaimer: The information provided in this blog post is for educational purposes only and should not be considered personalized financial advice. Always consult with a qualified financial professional before making investment decisions.