Try This If Markets Get Rocky

A timeless set of advice originally appearing in August 2014, again in January and October 2016, again in February and October 2018, August 2019 and as recently as May 2021… it can be wise to do a “gut check” on how extensively a rocky or down stock market could affect your emotions – and more important, your actions. There may be reason to establish a pattern of performing this exercise one to two times per year.

Adapted and shortened, “Gut Check in Rocky Markets,” can be applied to the times we are experiencing today in late August 2021, amidst US and global uncertainties of the geopolitical and pandemic variety. The central message stands:

It can be wise to do a “gut check” on how extensively a rocky or down stock market could affect your emotions – and more important, your actions.

Run down a basic checklist to determine why you may – and in most cases can – stick to your current investment positioning, given you had a PLAN in the first place.

  1. Cash level – Is your level of cash sufficient for your CURRENT (3-6 months) bills?
  2. Do you still have your job? (As in, your income)
  3. Do you have an Emergency Fund intact? (6-12 months of emergency savings in case of a job loss or emergency.)
  4. Do you already have a Personal Financial Plan in place? (For help with what this means, please call me.)
  5. How is your progress toward your short-term and long-term GOALS?
  6. Is your established Asset Allocation still roughly intact (i.e., your long-term “set” proportion of Stocks vs. Bonds vs. Cash)?
  7. When is the last time you heard from your Financial Advisor?
  8. Are you scared? If YES, which is perfectly reasonable, what are you scared of? *Please see below.

If you can answer YES to # 1-6then there is little to no reason to sell your investments in a rocky or down market. Waiting for a “buying opportunity” to invest some of your cash? It makes sense to speak with your financial advisor about how to deploy that cash according to an already agreed upon Asset Allocation.

If you find that you are scared, identify what it is that you fear:

  • Is it “losing everything”?? With history as a guide, the “losing everything” scenario is extremely unlikely—unless you have an outsize % of your monies invested in a very narrow list of securities or have most of your monies tied up in a business (these are two examples of NOT being adequately diversified).
  • Are you scared of not being able to achieve retirement?? Then this is more a matter of how much a person SPENDS than how much a stock or bond portfolio has gone down. Try analyzing how much you already have saved plus how much more you are actively saving.
  • Is it that you will run out of cash?? Try asking yourself: How long is it until I propose to retire or spend a chunk of cash?
  • Do you have a “peace of mind” amount of cash on hand today? Yes, “Cash is King” for that peace-of-mind feeling. Although holding too much cash can hold back a portfolio from keeping up with inflation over the longer-term. Talk with your financial advisor about an intelligent amount of cash to have on hand.

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