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Recession incoming? Here’s how you can prepare.
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Home>Daily Capital>Investing & Markets>5 Tips for Surviving a Bear Market

5 Tips for Surviving a Bear Market

The past several weeks have been a roller coaster – coronavirus continues to rock the global economy, and U.S. stocks entered a bear market, ending the 11-year bull run we’d all become accustomed to. Bear markets, while a natural part of market cycles, are scary for investors. The best defense against major market declines like we’re seeing now is a long-term financial plan and a well-diversified and strategically rebalanced portfolio. But if you are wondering what steps you can take now to survive the coronavirus bear market, here are some tips to keep in mind.

1. Try not to panic and keep market downturns in perspective.

While it’s definitely scary to see the stock market lose steam at historic rates, sometimes the most important thing you can do is what feels the hardest — and that’s to do nothing. It can be incredibly difficult to resist the urge to liquidate and sit in cash during dramatic downturns, but once we’re in a bear market, selling equities will only lock in your losses. If you need cash in the short-term, make sure you consult with your financial advisor about the best way to make that happen. But if you have an adequate amount of cash on hand to cover your day-to-day expenses, it’s usually best to stay invested.

It’s also important to keep the realities of market cycles in perspective – while this particular bear market is very unique, there are some things that all of the historical market drawdowns have in common. They all bounce back eventually. On average, bear markets since World War II have lasted around 10-15 months, so while it may feel painful now, a rebound should happen. It’s impossible to know when or how a recovery will materialize, but if we can learn one thing from history, it’s that long-term investors who stay the course have been overall rewarded for their patience and discipline.

2. Get a Fiduciary partner.

It can feel almost impossible to avoid making emotional decisions with your portfolio when markets are rapidly tumbling. A financial advisor (preferably a fiduciary, fee-based RIA – more on what that means later) can help you form and stick to a long-term plan that’s designed to withstand market cycles, including the tough times. This is one of the biggest benefits of having your investments professionally managed. An advisor can objectively evaluate your financial goals and recommend a long-term strategy best suited to getting you there. And if you still get scared from time to time, you have a voice of reason just a phone call away.

When choosing an advisor, make sure that they are a fiduciary, which means that they are legally bound to act in your best interest. This is different than a broker/dealer, who makes commissions and may be financially incentivized to sell you certain products or funds. In addition to making sure you are working with a fiduciary, here are some other questions to ask when looking for a financial advisor.

2. Use any extra funds for an emergency fund and make efficiencies in your spending.

With tax refunds coming in around this time of year, and the White House floating the idea of sending $1,000 checks to most Americans, now is a good time to put that extra money into an emergency fund. With the economy teetering on increasing coronavirus concerns, it’s important to be prepared with some cash that you can use for day-to-day expenses to avoid making any major changes to your portfolio while the market is down. We generally recommend that you should have 3-6 months of cash to cover your living expenses in case something unexpected should happen like a job loss or extended illness. You may need more or less depending on your specific situation, but this is a good rule of thumb for most people.

It’s a good idea to put your emergency fund in a safe account that’s FDIC insured and gives you the flexibility to make deposits and withdrawals as needed. If you need cash right away, you don’t want it tied up in an account with lots of restrictions on withdrawals! And with the Fed cutting interest rates to zero, also make sure you’re reading the fine print before opening an account to make sure you’re not paying more in banking fees than you are earning in interest!

Personal Capital Cash™ is a good option for keeping your emergency funds safe – there’s no hidden fees, and the account offers unlimited deposits and flexible withdrawals. Learn more about Personal Capital Cash here.

If you can, it’s usually a good idea to take a closer look at your budget during market drawdowns to see if there are any efficiencies you can make in your spending. For more on how to use Personal Capital to build and track a household budget, click here.

4. Stay focused on your long-term goals.

It can be difficult not to focus on day-to-day declines or movements in your portfolio when the markets are volatile. But it’s important to focus on the long-term, and measure your portfolio’s performance based on your chances of meeting your overall financial goals instead of comparing current performance to its peak performance. As we’ve talked about, market downturns have happened in the past and will happen in the future, but if you have a solid long-term financial plan and a well-diversified portfolio, you are well-positioned to bounce back.

If you don’t already have a long-term financial plan, it’s not too late to talk to a financial advisor about building one and how to minimize downside risk while navigating through this difficult time.

One good way to stay focused on the long-term is by using the free Retirement Planner tool in the Personal Capital dashboard. Even with portfolio balances going up and down, The Retirement Planner can be used to make success projections based on risk tolerance, long-term goals, spending habits and more. And we used “Monte Carlo simulations” which take thousands of possible scenarios – including market volatility – into account when measuring your potential for success. You can also use the Retirement Planner to see how controllable changes, like delaying your retirement for a year, taking Social Security at 70 instead of 65, or putting off the kitchen remodel you were planning, can improve your portfolio’s ability to support your through your lifetime.

5. Look after yourself and stay healthy.

This is the most important tip we have for you. These are difficult times – emotionally, financially, and physically. With the reason for recent market activity being a global health pandemic, the most important thing you can do to get through this bear market is to take care of yourself. While the major losses in the market and fears around the novel coronavirus (COVID-19) are incredibly stressful, try to eat well, exercise, and practice self-care wherever possible. Mental and physical health are the most important things to maintain, and will ultimately help you maintain your financial health as well!

From all of us at Personal Capital, we wish you and your families well during this challenging time. Keep checking back to Daily Capital for up-to-date market commentary, as well as tips for weathering this difficult economic climate.

Download Your Free Guide to Market Volatility

The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

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