Exiting the Correction and Other Thoughts
As the calendar gets ready to turn, think about your original goals
As we head into December, it’s important to keep the past 11 months in perspective and remember your original goals from the beginning of the year. Sure, it’s been an interesting year – more volatility, market corrections, new market highs, and tax reform – but unless something dramatically altered your circumstances, remember the basics.
Here are some thoughts for you to consider as you begin looking forward to 2019:
Long-Term Investors: Stick to Your Plan. If you are saving for retirement or another goal that is years away, the time to consider how much of a loss you can handle isn’t during a correction. Rather, you should consider the appropriate risk level for your portfolio when you are looking at your long-term goals, and thinking clearly about your financial situation and emotional reaction to risk.
If you haven’t created a plan, you should. If you have one, it may be worth checking in to see if your investments are still in line with that plan and if your plan continues to reflect your investment horizon, financial situation, and risk tolerance. If all that is so, you will likely be in a better position to manage the ups and downs of the market. If your mix of investments is off track, consider rebalancing back to a more neutral positioning.
Active Investors: Be Ready While most investors who have a long-term plan probably don't need to make any portfolio changes in anticipation of a spike in market volatility, some more-active investors may want to take action to prepare for more volatility. That could mean anything from setting exit strategies on existing positions, using stop-loss orders, or tracking technical indicators for signs it could be time to sell.
More-active investors might also want to consider having a cash reserve, and creating a watch list of investments to consider buying at certain price points, to prepare for buying during the downturn.
Retirees: Manage Your Income For retirees, who may be relying on their investment portfolio for a portion of their income, a market drop can present a different kind of challenge. Hopefully, retirees have an income plan that is built to withstand different market conditions. If so, you really won’t need to react to a short-term market move. If not, it may be a good time to sit down with an advisor to discuss your strategy.
Exiting the Correction For the second time this year, the market has entered into a major correction and exited. While we don’t know if this will be short-lived or the beginning of a bigger downturn, history shows that the market recovers from corrections, and most sound investment strategies are built to withstand volatility. As a result, long-term investors should make sure they are sticking with their plan, and not taking on any hidden risk.
One Final Thought
No matter which type of investor you might be, make sure you schedule time to talk through your 2019 goals with your investment advisor.