A 10-Step Bear Market Checklist
By: Cameron Diehl, CFP®
Friends – We’ve officially entered a bear market for the first time in over 11 years – and one of the fastest in history after we just made new all-time highs back in mid-February. The headlines and swiftness of it all are quite unnerving.
At times like this, the most common advice you’ll hear from me or many others will be the tried and true – remain calm, don’t panic, stay the course, think long term, look for opportunities – and throughout history that has proven to be sound advice, and I truly believe that will be the case again this time.
All that being said, even the most steadfast, long-term investors can feel helpless at times like this and sometimes it feels good to just do something.
To that end, I’ve put together a checklist of actionable steps that every investor can consider right now.
I’m working overtime and actively going through and reviewing all of these opportunities with each of my clients as we speak. If you have questions about any of these, please don’t hesitate to reach out any time. I’m here to help.
- Check Your Cash – Do you have enough cash on hand to weather a potential extended downturn in the economy? Do you have a buffer in case of emergencies, unforeseen expenses or disruptions to your income? If not, you may want to sketch out a game plan to shore up any shortfalls.
- Gut Check Your Portfolio – It’s OK for market volatility to make you nervous or anxious or even a little upset. But if this most recent sell off has pushed you to your breaking point, it’s likely a sign you were invested too aggressively to begin with. If that’s the case you may want to seek advice and consider adjusting your long-term investment strategy going forward.
- Rebalance If Needed – One of the great benefits of a well-diversified portfolio is the opportunity to regularly rebalance back to your target asset allocation. Over the past few weeks as bonds have increased in value and stocks have fallen, your portfolio may have drifted from its targets. Rebalancing back to those targets can support a discipline of selling high and buying low.
- Harvest Tax Losses – If you have unrealized losses in your portfolio, tax-loss harvesting can provide a silver lining to offset future gains or even up to $3,000 of ordinary income.
- Review Your Debt – Interest rates are at historic lows. Refinancing a mortgage or consolidating other debt could provide significant savings.
- Add to Your Longest-Term, Tax-Advantaged Accounts – To the extent you have sufficient liquidity and want to try and take advantage of a down market, I would start by looking at your longest-term, tax-advantaged accounts – 401(k)s, IRAs, HSAs, 529s.
- Buy Quality – If you are going to invest new money, I would steer toward high-quality holdings either in line with your existing portfolio or companies/investments you’d be comfortable holding long term. The risks in trying to pick beat up areas like energy, cruise lines, airlines, etc. likely outweighs the potential reward for long-term investors as they could continue to face difficulties for an extended period of time.
- Convert to a Roth IRA / 401(k) – Another opportunity in a market pullback is to convert to a Roth IRA / 401(k) at reduced values, thus triggering a lower tax bill. This is a complicated decision but could pay dividends if it fits within your overall plan.
- Get a Second Opinion – Regardless of where you are in your planning and investing, having a sounding board to discuss ideas or even just vent is always a good idea – please don’t hesitate to reach out.
- Stop Watching the Markets – Once you’ve gone through the steps above and are comfortable you’re well-positioned for the long-term, stop watching the markets. The added anxiety won’t do anything to help and you’ve done everything you can and we’ll continue to send along updates as needed.
Disclosure: The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Cameron Diehl and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance does not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions. Rebalancing a non-retirement account could be a taxable event that may increase your tax liability. Converting a traditional IRA into a Roth IRA has tax implications. Investors should consult a tax advisor before deciding to do a conversion.
