5 TIPS FOR SURVIVING A MARKET DOWNTURN

After enjoying a very positive third quarter, things are beginning to look a little less than stellar. Markets took a swing toward the negative in October, and a number of popular indexes and sectors are now in a “correction,” meaning they have dropped 10 percent from the previous high.

If all of this has you a little worried, you’re not alone. It’s perfectly normal, but it’s important to take stock of everything before taking action.

When times get difficult, we turn to our five keys to surviving a market downturn. They provide a quick guide to help you weather downturns like the one we’re seeing lately.

1. Keep the Fundamentals Foremost

Current Fundamentals

?? The U.S. economy remains strong

?? Unemployment remains very low

?? Corporations continue to generate

excellent profits

Changes from Prior Quarter

?? Growth is slowing from high levels

?? Trade issues are affecting some segments of the economy

?? A moderate number of high profile companies have under-performed expectations

2. Know the Cause

This downturn seems more the product of uncertainty in many areas than a tangible risk in any particular area. We see the following as a list of the key issues raising uncertainty and contributing to the downturn.

?? Trade: Chinese trade negotiations have stalled; Chinese GDP and select US companies are likely slowing as the uncertainty over trade delays expansion.

?? Slowing economy: The US economy is slowing slightly and investors are uncertain that trend will continue in 2019.

?? Rate increases: Investors are uncertain if the Federal Reserve will keep raising rates in a slowing economy, potentially leading to a recession.

?? Corporate earnings: A fairly small number of high profile companies have missed results or guided expectations lower, raising the uncertainty associated with equity investing.

The key word is uncertainty. One of our top concerns this year has been investors being overconfident and underestimating the inherent risk of investing. The sharp moves are evidence of investors potentially reacting more to the market dropping than changes in fundamentals.

3. Volatility is Like Grapes – It Comes in Clusters

We’ve seen two quarters recently where the S&P never moved by more than 1 percent on any single day. The first was the fourth quarter in 2017 and the second was the third quarter in 2018. Both of those unnaturally calm quarters were followed by swift bouts of volatility. Once markets get volatile, they tend to stay volatile for a while. Get used to these larger swings in the market. Volatility, like grapes, comes in clusters.

4. Eliminate “Points” and “Dollars” from Your Vocabulary

Think in percentages, not points or dollars. First, a 600-point drop in the Dow Jones Industrial Average today is not as important as it was twenty years ago. Back then, even a 100-point decline was cause for alarm. Now, it’s less than half of a percent. So if stating losses in points has less significance than it once did, stating them in dollars carries too much emotional weight. Investors often talk about gains in percentages, but declines in terms of dollars.

As the market has gone up, your portfolio has likely grown. If you experienced a 3 percent loss during a market downturn last year, a 3 percent loss today will mean a little more in terms of dollars for the simple reason that you are wealthier than you used to be.

Remember: putting up with short-term volatility is one reason long-term investing is profitable. We can’t control the market, but we can manage our emotions better by keeping things in perspective.

5. If You’re Going to Make any Changes, Be Strategic About It

Please, please consult your advisor before making changes to your portfolio and make sure any changes fit into your plan.

You always hear that the goal of investing is to “buy low, sell high.” Investors often hurt themselves by giving into emotion at the wrong time and pulling assets out of the market, effectively “selling low.” The losses then are often far larger than the gains an investor misses out on when the market bounces back.

About the Advisor – Christopher Abla APMA?, AWMA?, AAMS?, CRPC?

Christopher Abla is a Private Wealth Advisor who represents mass-affluent clients as their fiduciary and personal family office. Our firm provides an array of services including comprehensive financial planning, tax and estate planning, risk management, objective financial counsel, coordination of professionals, investment advice as well as trust and foundation management.

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Investment advisory services offered through CWM, LLC, an SEC Registered Investment Advisor. Carson Group Partners, a division of CWM, LLC, is a nationwide partnership of advisors

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