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5 Tips For Adapting To A Bear Market

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Perhaps you have retired, sold your business, received an inheritance, or have simply saved your way into a position where you are more interested in market movements than you were 11 years ago during the 2008 financial crisis. In other words, you are now experiencing a full-blown bear market for the first time with significant investments, and this is different from the market corrections or the near or slight bear markets that have occurred in recent years. If that includes you, or someone you love, here are five things you should consider. 

  1. We understand this feels very different from every other market decline you may have experienced. You may be tempted to believe things you thought you knew about markets are not true after all. Perhaps you think the best course is to take drastic “risk control” measures now with the thought of “getting back in” later, after this passes. Quite simply, these common thoughts are dangerous to your financial well-being as they are the only notions that can lead to behaviors that can turn temporary declines in portfolio values into permanent losses.

  2. Prices of financial assets fluctuate much more than their intrinsic values, and the value of your securities is ultimately a function of the income they each will produce over time. Importantly, in this bear market, you should focus on how much income your portfolio is projected to generate. All investors would benefit by paying more attention to the income their portfolios produce and less to the values the fickle market assigns from day to day.

  3. Sometimes a serious bear market causes us to realize that our tolerance for market risk is not as high as we had originally thought. That’s OK. Now is the time to note that but it’s not the time to make associated adjustments. The time for adjustments is after markets have substantially recovered (as they have always done following every bear market in history). It will be hard then to remember how you feel now about your tolerance for risk, but it will be important for you to do so.

  4. If you have assets managed by a wealth management team, or someone else, you may have noticed that activity in your managed portfolios (buying and selling) has likely been higher lately because market volatility has been higher. Note that besides rebalancing, this activity may also take advantage of opportunities to upgrade the quality of holdings and to realize tax benefits. 

  5. Most importantly, in an environment such as this, it’s important to set aside emotion and stick to discipline. That is perhaps the most important thing we bring to our relationship. Please know this too shall pass. Yes, this crisis is different. They all are. Yet they are all the same in their most important feature, which is, they all have been temporary.

The Foster & Motley team is here to help guide you through this tumultuous time as we continue to battle the implications of COVID-19. Please don’t hesitate to reach out to any member of our team, and we wish you and your families health and wellness during this unprecedented time.