5 Things to Do Before the Next Market Downturn
By: Cameron Diehl, CFP®
Friends – Stock market volatility recently resurfaced and reminded us that markets do go down from time to time. And while much of the recent decline has already been recovered, we’re still over 9 years into the current bull market and more volatility in the near term should be expected. With that in mind, I wanted to share a few thoughts on things to consider ahead of the next downturn.
- Remind yourself that volatility is normal – Since World War II, markets have averaged a decline of 5% or more about once every six months. Volatility is perfectly normal. It’s how you react to those ups and downs that what will have a bigger impact on your long-term success.
- Reassess your time horizons – If you have a long time to invest (10+ years), volatility can be less concerning and may even be seen as an opportunity. However, to the extent you’re closer to retirement or have another near-term goal (1-3 years), you might want to reposition at least some of your investments with an eye toward lower volatility. Most people have both and should plan accordingly.
- Rebalance – Strong equity markets have likely increased the portion of your portfolio invested in stocks, potentially leaving you with a riskier asset allocation than intended. Regularly rebalancing your portfolio back to its target allocations is an important discipline to maintain.
- Revisit tax planning – Rather than worrying about market movements we can’t impact, I think time is better spent focusing on the overall tax efficiency of your portfolio. Making sure you’re positioning the right types of investments in the right types of accounts along with other thoughtful strategies can have a meaningful impact.
- Manage risk – Good financial planning starts with managing risks. Having the right types of insurance, particularly life, disability and long-term care, along with appropriate estate planning documents (wills, powers of attorney, etc.), is so critical and often overlooked. If you do nothing else, please consider these points.
As always, if you would like to discuss anything covered above, please don’t hesitate to call or email me. I’m always happy to help.
Disclosure: While we are familiar with the tax provisions of the issues presented herein, as financial advisors of Raymond James & Associates we are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional. Information contained herein was received from sources believed to be reliable, but accuracy is not guaranteed. Information provided is general in nature, and is not a complete statement of all information necessary for making an investment decision. Views expressed are the current opinion of the author, but not necessarily those of Raymond James & Associates. The author’s opinions are subject to change without notice.
