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Money & Finance

How to Stay Calm During a Down Market

The recent volatility and downward movement of the financial markets, coupled with concern about a worldwide pandemic, may be causing you sleepless nights and anxiety-filled days. With so many things outside of your control, you may feel like you are in crisis management mode every waking hour. If you aren’t out looking for supplies or looking after loved ones, you are probably looking at the news 24/7. 

So how do you stay calm in the midst of all this? How do you know what actions you should take when it comes to your investment portfolio?

Acknowledge Your Fears

First and foremost, acknowledge your fears. It is perfectly normal to be fearful in times such as this. Experts will tell us that we cannot think with our emotions and rationally at the same time. The part of our brain that controls emotions will dominate and make it impossible to think fully rationally. 

Start by naming your specific fear – it may be that you will have to work many more years to be able to retire, cut back, change careers or start that business. If you are already retired you may fear that you will have to find a job or reduce your spending significantly or…..that you will literally run out of money and be on the streets. You may fear that the markets will “never” recover and we will experience a long and protracted recession or even a full-on depression. Own your fears. 

Once you have named your fears, examine each one carefully. Think through what would happen in your scenario. For example, you are afraid you will have to work many more years than you had planned. What does that look like for you? Imagine it happening and how you would live each day, how you would feel about the work you are doing, etc. Or if you are already retired, imagine your day to day living with a potentially reduced income stream. Can you see getting a part-time job or exploring a money-making venture you have always wanted to do? Can you envision seeking out low-cost travel adventures instead of cruising every year? If you are worried that you will become dependent on your family, picture multi-generation living and what it would look like in your family. 

Unless you acknowledge your fears and work through them, you will likely have a hard time moving on to any rational action. Your emotions will get in the way of making rational decisions. Once you have named your fears, go to the next step and assess the facts of your particular situation. Good crisis management examines all possibilities to determine the best course of action. And it looks at the variables within your control. You can’t control the broader market reaction to a worldwide event, but you can control how you react with your own portfolio. 

Ways You Can Respond

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Common responses to a down market are panic selling, doing nothing, ignoring the issue, and investing more by buying at market lows. The panic selling tends to occur among individual investors who are not seeking advice. And it may seem like there is a lot of that going on, but that doesn’t mean you have to fall victim to herd mentality. Ignoring it won’t make it go away and could cause you to miss an opportunity to buy, harvest tax losses or rebalance your portfolio to be more tax-efficient from a total household approach.

Buying low, of course, assumes you have the available cash to do so. If you don’t have cash on hand, consider this option- increase the contributions you are making to your retirement plan to the highest percentage allowed or that you can afford. But the 4th choice, “do nothing”, may make the most sense. Many of us who took this approach back in 2008-2009 not only didn’t lose anything by locking in losses, but are still well ahead despite the recent downturn. 

Get Help

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This is a great time to get help with your financial education. As Prime Women, we have often deferred to or let our spouses handle financial and investing decisions. Now is the time to get involved. Now is the time to seek professional advice. Crisis management mode means you bring in the experienced advisor or coach who has dealt with this before, who has helped many people, and who, in the midst of your fear, can “talk you off the ledge”.

Talk to your friends and find out who is receiving communication from their advisor, who is calm in the storm, and who is confident in their portfolio because their advisor positioned them for just such an occasion. These are the advisors you should contact and phone interview before deciding on your next steps. Financial advice has shifted over the years away from selling to financial coaching, and we can all use that coaching. 

Learn about how the different types of accounts work together. Consider the totality of your investments-tax-deferred, tax-free, and taxable; don’t look at each as separate accounts. They should all be managed in a coordinated fashion to make sure they are all in sync, and that you reset your total portfolio for long-term success. Take advantage of tax-loss harvesting in taxable accounts. If your retirement plan has been too conservative, rebalance to buy into the under-represented assets at low prices. 

If you look your fears in the eye, consider the rational alternatives, and seek expert advice, you will be able to weather this storm and come out of crisis management mode feeling like you are in charge of your finances. 

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