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TOP 10 TIPS FOR SURVIVING A BEAR MARKET
Over the past two years we have dealt with significant inflation , market downturns and recoveries , and aggressive action by the Federal Reserve to combat inflation . Whether or not the economy falls into a recession or “ the Fed ” successfully achieves the “ soft landing ” its leaders hope for is yet to be seen . To be ready whenever the next bear market hits , here are 10 helpful tips for surviving financially .
1 . Create Proper Asset Allocation – This is not something you do during a bear market ! In advance of one , you should make sure you have a portfolio in which you are comfortable riding out the ups and downs . We call it an “ all-weather ” portfolio . Doing this during a bear market , however , could permanently lock in losses for you .
2 . Focus on Your Financial Plan – It is easy to focus your attention on short-term returns . However , you should focus on the long-term financial plan you have in place and your long-term goals . Shorter-term goals should not be funded with volatile investments , but rather cash that you have on hand . Bear markets should have very little impact on your long-term financial goals .
3 . Continue Contributing to Your Retirement Plan – Consistently contributing ( dollar cost averaging ) into a retirement plan is a great way to survive a bear market . You are constantly buying at lower prices throughout the downturn . Your average cost basis will drop , resulting in a larger gain when the market recovers .
4 . Add New Money to Other Investment Accounts – You can set up automatic investments or contribute lump sums over time when the market has dropped . Again , this will help to bring your cost basis down so you will come back quicker .
5 . Rebalance Your Portfolio – Rebalancing is important regardless of whether the market is going up or down . Investments do not all rise and fall at the same rate over time . Rebalancing will ensure that your risk level stays where it needs to be and that you do not end up overweight in certain market segments as a result of short-term performance .
6 . Reduce Distributions From the Portfolio – If you can afford to reduce the amount of money you are taking from your portfolio during bear markets , you will allow for more growth as the markets rebound . Then , once the rebound has occurred , you can increase them back to where they were . This is not always possible due to budget constraints but should be considered if it works for you .
7 . Take Advantage of Tax Planning – Tax loss selling in nonretirement accounts during times when investments are dropping in value makes a lot of sense for most investors . You can always carry forward additional tax losses once you have offset gains for the year and have gone above $ 3,000 of additional losses toward ordinary income .
8 . Maintain a Proper Emergency Fund – It is important to keep proper emergency reserves for times when the markets are down . That way , you can avoid withdrawing money from investment accounts for a period of time . This also helps prevent funding unexpected expenses with high-interest credit cards .
9 . Control Your Emotions – It is easy to fall into the trap of making an emotional decision because of the abundance of information available online and on television . It is important not to let emotions drive your investment decisions . It almost always will force you to make the wrong decision . Panic selling is almost always the worst thing that can be done . It is very hard to know when to buy back in after selling because of fear . When the market starts to rebound there is no way to know if it is a long-term or short-term rebound .
10 . Consider Roth Conversions – If Roth conversions are already part of your plan for the year , a market downturn is a great time to convert . You will be able to convert more shares for the same tax hit . When the market recovers , those shares will now grow tax-free .
If you do not want to do all of this yourself , a good financial advisor can help you with all of it !
David Hoffmann has 25 + years of experience as a Financial Advisor and is the CEO of Justabout Wealth Management . As a CFP ® designee , he counsels clients on financial planning and investments . He also serves companies by providing retirement plans .
For further information , contact David at : Justabout Wealth Management , 375 Southpointe Blvd . Suite 360 , Canonsburg , PA 15317 Office : 724.754.1440 justaboutwealth . com
Legal Disclosures : Securities offered through Triad Advisors , Member FINRA / SIPC . Advisory services offered through Triad Hybrid Solutions LLC , a registered investment advisor . Justabout Wealth Management LLC and Triad Advisors , LLC are not affiliated .
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