Advertisement
investing

Afraid of a Stock Market Correction? Get a Plan

With stocks' record run, some investors can't help but be worried a dip could be coming. A financial strategy can help you feel more confident.

Lately it seems as if every client or potential client I see asks about the possibility of a looming market correction.

Investors are loving these good times, but they’re smart — they know the market runs in cycles, and the good times can’t last forever.

The markets keep hitting record highs. We’re in the second-longest bull run in history. And yet there’s uncertainty, too, globally and in this country with our new president.

Advertisement - Article continues below

When people ask if a correction is coming and what they should do to prepare, my answer for most is: Stay the course.

Whether you’re still working or already retired, consistency pays off. Especially in uncertain times, when a market correction is on many people’s minds, it may be best to stick to your plan. If you don’t, if you overreact, you could end up making financial decisions that may set you back in your strategy.

Of course, if you’re worried that the plan you have in place is not the best, that’s a different conversation. Then it may make sense to make some changes. If that’s the case, here are a few steps to consider:

1. Get professional advice.

Perhaps you’ve been handling things just fine on your own with your 401(k) or 403(b). As you near retirement, however, it’s time to speak to a specialist who can help you take the focus from accumulation and growth and put it on income planning and asset protection.

Advertisement
Advertisement - Article continues below
Advertisement - Article continues below

Many financial professionals will consult with a potential client once or twice with no obligation, so you can get a feel for whether you’re a good fit. You should ask for an analysis to see if there are any redundancies in your current portfolio, if you are truly diversified and if you are paying any unnecessary fees.

You also should talk about risk — how much you can stomach emotionally, how much you can afford and how much is in your current portfolio. Your financial professional can use a program like Riskalyze to help assess and align your risk. That is especially important if you’re anticipating a market downturn and might be tempted to make trades based on your anxiety.

2. Set up a retirement blueprint.

A lot of people have piles of statements from different accounts, but that doesn’t always mean they have a strategy in place. In retirement, you need a detailed plan for your money — and that plan should help give you more confidence that you’ll be OK.

Advertisement - Article continues below

People tend to get out of the market when it’s down, and by then they may have already lost money. Then they may get back in when it’s coming around again … but by then, most of the gains could already have been made. That bad timing can be very costly.

3. Know the difference between a pullback, a correction and a bear market.

Everyone is talking about a coming correction, but what exactly does that mean? It isn’t the same as a pullback — typically defined as a short-term decline of 5% to 9% from a recent high. And it isn’t as menacing as a bear market, which is a downturn of 20% or more that can last for months.

Advertisement
Advertisement - Article continues below

A correction is the middle ground — a 10% to 19% drop from recent highs. It’s a little scarier than a pullback, but it’s still temporary. It is sometimes an indicator that we’re going to have a bear market, but that’s not always the case. It can be an opportunity for investors hoping to get discounted prices. Unfortunately, it’s also when some people go wrong based on their emotions. Fight the instinct to flee.

4. Diversify.

The old-school equation for diversification is a 60-40 split between equities and bonds — and that’s not always a bad scenario. But these days, there are so many more options, both for protection and growth.

If interest rates continue to rise, it could have a ripple effect, and the bond market likely will suffer. In retirement, that may not help you as an inflation hedge, so it’s important to look at alternatives such as annuities. I know, “annuity” is a dirty word to some financial professionals — but that could be because they either can’t sell them or they don’t really understand how they work. It’s unfair to broad-brush them all with the same bad rap. A good annuity can be a valuable piece of your plan. It’s a long-term financial vehicle — the insurance company gets to use your money for a pre-determined number of years — but that’s not a bad thing for someone who is 60 years old. Annuities aren’t for everyone, though, so ask your financial professional if they would be a fit for you.

If you’re ready to make a change or create your first real retirement plan, find a financial professional who is focused on informing and enabling you, not selling you products. And be careful about what you read and hear. It’s good to have information, but what you see in the media isn’t necessarily tailored to your specific needs.

An experienced and knowledgeable financial professional with a retirement focus can help equip you to work toward your goals — while considering uncertainty in the market.

Kim Franke-Folstad contributed to this article.

About the Author

Christy Smith, Investment Adviser

Founder, Presley Wealth Management LLC

Christy Smith, an Investment Adviser Representative and insurance professional, is the founder of Presley Wealth Management, which focuses on retirement planning and insurance. She co-hosts a weekly radio show. She is married and has three children. Investment advisory services offered through AE Wealth Management, LLC (AEWM). AEWM and Presley Group and Presley Wealth Management are not affiliated entities. Investing involves risk, including the potential loss of principal. Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company.

Advertisement

Most Popular

What Are the Income Tax Brackets for 2020 vs. 2019?
tax brackets

What Are the Income Tax Brackets for 2020 vs. 2019?

The IRS unveiled the 2020 tax brackets, and it's never too early to start planning to minimize your future tax bill.
June 20, 2020
Tax Changes and Key Amounts for the 2020 Tax Year
tax law

Tax Changes and Key Amounts for the 2020 Tax Year

Americans are facing a long list of tax changes for the 2020 tax year...and it's never too early to start thinking about next year's return.
June 22, 2020
10 Tax Breaks for the Middle Class
tax deductions

10 Tax Breaks for the Middle Class

Tax breaks aren't just for the rich. There are plenty of them that are only available to middle- and low-income Americans.
June 30, 2020

Recommended

Avoid Blindly Following Random Benchmarks on the Road to Retirement
retirement planning

Avoid Blindly Following Random Benchmarks on the Road to Retirement

Unless the benchmark is relevant to your personal plan, it could steer you into taking a wrong turn.
July 8, 2020
13 Best Vanguard Funds for the Next Bull Market
mutual funds

13 Best Vanguard Funds for the Next Bull Market

Optimistic that the bounce since March is indeed the start of the next bull market? Here are the 13 best Vanguard funds to help you make the most of i…
July 7, 2020
15 Best Fidelity Funds for the Next Bull Market
mutual funds

15 Best Fidelity Funds for the Next Bull Market

Investors looking to squeeze more profit from the next bull run can look to Fidelity funds for strong active management and tactical investments.
July 7, 2020
Where Should You Retire?
retirement planning

Where Should You Retire?

This week, our Your Money's Worth podcast host Ryan Ermey interviews co-host Sandy Block about her recent story about the best retirement destinations…
July 7, 2020