7 Ways to Prepare for Market Shocks

7 Ways to Prepare for Market Shocks

October 23, 2018

The nature of 2018’s Wall Street thus far is volatility. Before you begin to invest this year, or even in 2019, you must know it’s not a matter of if, but when a market-shocking event will happen. It is paramount for investors to be proactive rather than reactive in their portfolio planning for when a major political scandal, natural disaster, or terrorist attack happens somewhere in the world.

We are confident in protecting our clients from many things that can cause a market down turn, but there are certain events in life no one can be 100% prepared for. What can be done? Here are some proactive measures you can take to prepare your portfolio for the unexpected:

  1. Analyze Risk

You should analyze your risk tolerance if you haven’t already. Decide how much fluctuation you are willing to take…can you afford to lose 5% of your account, 10%, or even 20%? You should not be in the market if you cannot handle at least a 10% market fluctuation given our current economic environment.

  1. Establish Boundaries

We’ve seen how quickly potential terrorist attacks can happen and also how fast the markets can react. What is your downside line in the sand?

  1. Know Correlations

Conduct some research so you better understand what areas of the market “generally” rise or fall when there is an attack.  For example: tourism and airline sectors may decline while defense sectors rise due to reactive consumer behaviors and military measures.

  1. Keep a Cushion

Have an emergency cash amount in money market available at all times. How much or what percent?  Everyone is different, so be sure to leave an amount you are most comfortable with. Work with your financial advisor to determine how much you’d like to reserve.

  1. Stay Calm

For better or worse, emotions can sometimes influence your financial decisions. So don’t overreact, stay calm and take a deep breath. For example, if you watch the futures performance at night, sometimes they fall dramatically. You can wake up in the morning to take a look and see polar opposite performance. If you were to make a decision based on the futures the previous night, you may have missed out on an opportunity.

  1. Outline Actions

Create a plan that outlines your plan of action if the markets stay closed for an extended period of time. Do you draw an income from your portfolio?  Will you be able to do so if the market is close?  Try to keep at least 3-6 months of living expenses available in a bank account, not a brokerage account. Why?  Many brokerage accounts invest your cash into money markets which are technically an investment, and those funds may not be easily sold in order to pay you the cash you need to live.

  1. Plan Your Purchases

Will you have the courage to buy when everyone else is selling? If so, always have a buy list ready.

 

The Bottom Line: Building wealth takes time and arduous effort. Without a plan to prepare and protect your money from the unexpected events in life, you may find yourself in a regrettable situation. If you’re ready to build a plan to create retirement income to meet your income goals and needs, discover how we can serve you and contact us today.

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