What to Do Before Another Market Crash
Besides Gary Cohn , there will be another correction (or crash) in the market at some point, and you will want to be ready when that happens.
“No matter how old you are, market adjustments and market downturns are part of the overall ecosystem of markets, and this is how it works,” says Sean O’Hara, president of Pacer ETFs . “Come in with your eyes open.”
Here’s what you need to know.
If you’re under 60 …
Are you okay. “The younger you are, the less you need to worry about it,” says O’Hara.
In fact, you can think of it as if you were listing a stock for a sale. You want to receive them at lower prices, especially if you are automatically investing through a workplace retirement account that you do not actively manage. “When something else we want goes on sale, we get excited, but when stocks go down, we think it’s bad,” he says. “These short-term downturns should be viewed as opportunities.”
If you’re young and invest mostly through 401 (k), don’t think of it as a trading account that is losing money, suggests Kevin Dixon, Senior Market Analyst at Market Traders Institute . Think of it as your “bird house” where you can buy cheaper stocks. “You are using the concept of cost averaging,” says Dixon. “You buy up and down.”
Historically, bear markets have lasted less than two years , while bulls have lasted much longer. “If the market starts to crash, this volatility is an opportunity that you only get every seven to ten years,” says Dixon.
Focus on what you can control. “Make sure you are on the right track to pay off the debt and build your emergency fund”, – says Andrea Coombes, a specialist in investment and pension Nerdwallet – and then focus on your investment purposes. “If there are decades or more left until retirement, consider harnessing the power of long-term market growth to help you achieve that goal,” she says.
Above all, don’t let your emotions influence your decision making.
“We have no way of separating our humanity from our behavior, we all have emotions, we are all afraid, and there’s no escape from that,” says O’Hara. “If you let fear rule you, you will make the wrong decisions.”
If you are retired …
This is where things get tricky. If you are in your 60s or are looking to retire in the next five years, “What really gets people into trouble is earning income during these bear market scenarios,” says O’Hara.
“If you have a few years to go to retirement, you should be reasonably close to your retirement savings goals,” adds Michael Dinich, retirement planner at Your Money Matters. “At this stage, it is more important not to lose money than to get the highest possible profit.”
So think about the liquidity of your money, ”says Doug Andrew, author of The Last Chance of a Millionaire and a Millionaire by Age 30 . You want to be able to get to it when you need it most.
“Can you access your money, when you need it, in a short time, via electronic funds transfer or with a phone call?” says Andrew. “Too many investors prioritize liquidity as a rate of return, even in third or fourth place on the list. I say this is number one. “
So consider adjusting your asset allocation and explore alternatives such as dividend mechanisms. One of Dixon’s favorites: REITs ( real estate investment fund ). “You can make monthly dividends and generate income while the markets do what they are going to do,” he says. “Dividend income is smart. You can diversify your portfolio and know that you will only be paid to own shares. “
And don’t forget about your overseas holdings. “There is no single market for stocks, so some of the best opportunities to invest in stocks may be outside the US,” says O’Hara. “Perhaps you look at your portfolio and ask yourself if you have enough money outside of the US. Are you working hard enough to reduce your risk? “
That said, the old equation for asset allocation (110 or 100 minus your age equals the percentage of your portfolio in stocks) may be outdated, O’Hara says. People are living longer, which means you can have 20 to 25 (or more) years in retirement. You don’t want to run out of money because you didn’t have a high enough profit.
Use this as an opportunity to look at your overall financial plan and short term investment goals. “If you’re investing for a short-term purpose, it might be time to start leaving the stock market – as a rule, you don’t want to invest in stocks if you need money in three years or less. says Coombs of Nerdwallet. Check out this article for more information.