The current market bull run is the second longest on record. To become the longest ever, this rally would need to continue to 2021. It is easy to be uneasy about where we were in March 2008 and where we are today—and anybody who suggests they know how this will play out is kidding you and themselves. A powerful mantra to always remember is "nobody knows," not even the so-called experts.
With that said, while we don't know when the next bear market will happen nor how severe it will be, we do know it will happen. How do you prepare yourself? Here are a few tips beyond the obvious age-appropriate asset-allocation guidelines:
The next crisis is an opportunity.
If you are in your working years, a downturn can be a window to buy stocks "on sale." If you view every paycheck deferral or systematic investment as buying a great deal on stocks, the pain you feel in the existing portfolio may ease. Moreover, investors of all ages may find the gumption to shift existing funds outside of the stock market into it if the "opportunity" mindset overcomes the "crisis" emotion.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
This is much easier said than done, because money is very emotional. Managing these emotions is part of our collective challenge.
Managed money, allocation funds and target retirement date funds have a pitfall.
Let's say you are retired and your entire portfolio is in one of these increasingly popular investment devices with a built-in 60/40 allocation. You are using this portfolio to replace your paycheck and fund your retirement. For many years, you've been able to withdraw money—and the portfolio has grown. You have benefited mightily from what advisers call the "sequence of returns." Retire during a bull market, and your early years of retirement seem easy. But what should you do when the market turns down by 20%, 30% or even 60%? Remember, peak to trough, the S&P 500 lost 49% in 2000-2002 and 57% in 2007-2009.
Retirees using these types of accounts to replace their paychecks face a dilemma: The fixed-income/cash components of those accounts are built in. The investor can't contact the custodian of the fund and ask them to take the distribution from the fixed sleeve. The stock component of the distribution and its down-market loss has been locked in. Make sure you balance your portfolio with three to five years of protected retirement accounts you can cherry pick from for distributions in a down market. This allows the stock components to heal.
Run your portfolio through a "what-if."
How would your portfolio have done in 2000-2002 or 2007-2009? This can be both compelling and sobering. Ask yourself how you would react when that happens again. If panic comes to mind, you have some work to do, either with your portfolio and/or your mindset. What are your Plan B and Plan C scenarios for when it happens?
Capitalism isn't always pretty. Considering that, navigating retirement requires diligence, education and even worst-case scenario planning. Saving and making wise investments impact us daily, both on an emotional and financial level.
-
Ten Cheapest Places to Live in TexasProperty Tax Looking for a cheap place to live in Texas? Look no further. These counties have the lowest property tax bills in the Lone Star State.
-
AI Is Missing the Wisdom of Older Adults: What It Means for YouAI will increasingly affect your healthcare and finances, but young workers are primarily designing the systems and getting most of the jobs.
-
The Three C's to Financial Success: A Financial Planner's Guide to Build WealthConsistency, commitment and confidence in your chosen strategy are more critical to your financial success than finding the 'perfect' financial plan.
-
A Financial Adviser's Guide to Solving Your Retirement Puzzle: Five Key PiecesIf retirement's a puzzle you're struggling with, try answering these five questions. The answers will guide you toward a solution.
-
You're Close to Retirement and Cashed Out: How Do You Get Back In?If you've been scared into an all-cash position, it's wise to consider reinvesting your money in the markets. Here's how a financial planner recommends you can get back in the saddle.
-
After the Disaster: An Expert's Guide to Deciding Whether to Rebuild or RelocateHomeowners hit by disaster must weigh the emotional desire to rebuild against the financial realities of insurance coverage, unexpected costs and future risk.
-
A Financial Expert's Tips for Lending Money to Family and FriendsWhat starts as a lifeline can turn into a minefield if the borrower ghosts the lender. Following these three steps can help you avoid family feuds over funds.
-
What the HECM? Combine It With a QLAC and See What HappensCombining a reverse mortgage known as a HECM with a QLAC (qualifying longevity annuity contract) can provide longevity protection, tax savings and liquidity for unplanned expenses.
-
721 UPREIT DSTs: Real Estate Investing Expert Explores the Hidden RisksPotential investors need to understand the crucial distinction between a REIT's option to buy a Delaware statutory trust's property and its obligation.
-
I'm an Insurance Expert: Yes, You Need Life Insurance Even if the Kids Are Grown and the House Is Paid OffLife insurance isn't about you. It's about providing for loved ones and covering expenses after you're gone. Here are five key reasons to have it.
