“The ultimate measure of a man is not where he stands in moments of comfort and convenience, but where he stands at times of challenge and controversy.” – Martin Luther King Jr.
Dr. King’s words hold true, whether in the context of his social justice efforts or an investment portfolio. While investors were briefly tested during the 30% dip in 2020, it has been a while since we have seen the massive, prolonged losses of 2008. As the market continues to tick higher (at least for the time being as I’m writing this), many investors’ anxiety meters are at an all-time high as well. We often hear concern about a market downturn when things seem to be too good to be true, and although we cannot predict when a downturn will take place, we can certainly prepare our portfolios.
Most things that go up must come down; however, age is an exception. An individual in their 30s would not be as affected by a downturn as one in their 70s due to the time and ability to recover after the fact. While it may not have detrimental effects on your portfolio, you still need to have a plan.
- Emergency Fund – Regardless of your age, having a liquid emergency fund is a must. Life throws us curve balls at the worst times it seems, so having a savings account with 3-6 months’ worth of expenses is key.
- Think Long Term – Short-term market behavior or unexpected life events may tend to let your emotions get the best of you. While the market is unpredictable daily, it’s far more predictable in the long term. That is why it is so important to maintain a buy-and-hold approach.
- Look For Discount Opportunities – Just as you would go to your local shoe store to purchase your favorite shoes for 20-30% off, a market downturn provides a great opportunity to enter the market at a discount.
Many investors that fall into this category may still have nightmares about the market in 2008. Studies have shown us that this generation of investors is much more timid with their portfolios and greatly fears another significant down market. While a market downturn could be detrimental to some, having a well-prepared plan could help provide protection and mitigate risk.
- Emergency Fund / Cash Account – You will never outgrow the need to have a liquid emergency fund. As you retire, you should have 2 years’ worth of income readily available whether that is through a structured product or set aside as cash. While this is essential to have in case of a market downturn, it’s not enough on its own.
- Have a Plan – Timing the market is nearly impossible, and if you rely on your emotions, you will more than likely get burned. Having a customized plan that isn’t built on knee-jerk reactions can help you prepare ahead of time. The whole point of a plan is to give you options – for both the good and the bad. When things are going well, you want the flexibility to enjoy it however you’d like. When things aren’t going quite as well, you want to know that you have more than hope that your hard-earned money isn’t going to run out.
- Look For Discount Opportunities – No, your eyes didn’t jump back up to the middle of this blog! This is an area where age is not much of a contender. Not everyone will have excess cash on hand, and it is important to not use your emergency fund to purchase additional investments. However, if you are fortunate enough to have excess cash, it would be wise to take advantage of a down market while you can. When the market gives you lemons, add some sugar to make lemonade!
So, where does your plan stand in the face of challenge and adversity? Can your portfolio withstand whatever the market has in store for us in the near future? Whatever point you’re at, know that it’s important to keep moving – to keep investing – when challenges come our way. To quote Dr. King again, “If you can’t fly then run, if you can’t run then walk, if you can’t walk then crawl, but whatever you do you have to keep moving forward.”
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. *This blog was originally published on MySaline