Getting through stock market corrections begins before they happen. While it is almost impossible to predict exactly when a market correction will begin and end, there are things you can do now to help reduce the stress felt by many investors during these events.
Remember that corrections are temporary and a normal part of healthy markets. You can get through any stock market correction if you have the right frame of mind, adhere to a few basic guidelines and use your financial advisor as a sounding board.
Avoid Hasty Investment Decisions
It’s normal to feel anxious during corrections and think about changing direction with your investments. But timing the market rarely, if ever, works. By the time you’ve made a decision to change investments, it’s possible the correction could be half over. Once you’re out of the market, the next decision is when to get back in, which is also timing the market.
Your financial advisor is there to not only manage your investments, but also to be your sounding board and help manage your own emotions. The next time the market corrects, give your advisor a call to discuss what’s happening.
Make Sure You Have a Diversified Portfolio
Maintaining a properly diversified portfolio can be a great defense during down markets. When you have a properly diversified portfolio, you lower your risk of sustaining major losses in a down stock market. While diversification does not guarantee profit or protect against loss in declining markets, you can avoid concentrating all of your equity holdings in one or two stocks, a single money manager or a single asset class.
Your financial advisor should have you properly diversified among money managers and investment strategies depending on your risk tolerance and goals. Discuss your portfolio allocation with your advisor today to understand how you are invested and how the investments match up with your investment plan.
Consider Tactical Money Manager Strategies
The role of a tactical money manager is like that of a captain of a ship. The captain navigates his ship in both clear and choppy waters, to safely get his passengers to their destination. Your tactical money manager charts a course, can take action during periods of market weakness in an effort to help you reach your financial goals.
Tactical money managers generally have the flexibility to respond to market conditions by being able to adjust the percentage of a particular asset class that is held in a portfolio. For instance, in anticipation of market weakness, the strategy may reduce the percentage of equities and increase the percentage of other assets that may be seen as more favorable during that time. Many of these strategies are guided by a set strategy that helps remove the emotion for the investment decision making.
It’s important to note that a tactical strategy may not make any adjustments during a stock market correction. Since corrections are temporary by definition, the strategy could recognize the market weakness as a correction in the midst of an otherwise up market and improving economy.
Read more about tactical money manager strategies here.
Navigating the next stock market correction is just a matter of being prepared. Avoiding hasty decisions and consulting your financial advisor are two of the most important things you can do. Give one of our Wealth Managers a call today at (800) 541-7774 to discuss your portfolio and to learn more about tactical money managers.
Strategy descriptions listed represent a brief outline of the portfolio’s objective. There is no guarantee that any manager or product will be successful in achieving the objective described. The strategies described are not suitable for all investors. This material does not represent a personalized recommendation and does not reflect individual investor’s risk and return goals nor does it serve as the receipt of, or a substitute for, personalized advice from WrapManager, Inc. or any other investment professional.
