This is an updated version of a story previously published on April 28th.
Financial resources no one is immune. But there are ways to prevent losses and get the most out of what you have.
“If you are not working, or looking for a better job, now is the time to take advantage of the very strong job market and job stabilization,” said Mary Adam, a Florida-based certified financial planner.
Take advantage of the housing boom
Cover your short term cash needs
Having liquid assets to cover you in an emergency or severe market downturn is always a good idea. But it’s especially important when faced with major events beyond your control – including layoffs, which usually increase during downturns.
This means having enough money set aside in cash, money market money, or short-term fixed income instruments to cover several months of living expenses, emergencies, or any major anticipated expenses (for example, a down payment or college fees).
This is also recommended if you are a relative or retired. In this case, you might want to set aside a year or more of living expenses that you would normally pay with withdrawals from your portfolio, said Rob Williams, managing director of financial planning, retirement income and wealth management at Charles Schwab. This should be the amount you will need to supplement your fixed income payments, such as Social Security or a private pension.
Additionally, Williams suggests having two to four years in low-volatility investments such as a short-term bond fund.
This will help you weather any downturns in the market should they occur and give your investments time to recover.
Don’t trade in the headlines
“Making a drastic change in the midst of all this uncertainty is usually a decision [you’ll] “I regret,” said Don Benihoff, chief investment officer at Liberty Wealth Advisors and former investment strategist at Vanguard.
Look back at the crisis periods are over last century and you’ll see that stocks have usually come back faster than anyone would have expected right now, and they’ve performed well on average over time.
For example, since the onset of the financial crisis in 2008, the S&P 500 has returned 11% annually on average through 2021, according to data analyzed by First Trust Advisors. The worst year in that period was 2008, when stocks fell 38%. But in most of the years since, the index has posted gains. Four annual gains ranged between 23% and 30%.
If you go back to 1926, the average annual return on the S&P was 10.5%.
“Continuing on the course may be hard on your nerves, but it may be healthier for your portfolio,” Williams said.
This does not mean excluding the seriousness of nuclear threats or the possibility that this period will diverge from historical patterns. But he noted that if things escalate globally, “we will have to worry more about our portfolios.”
Check your risk tolerance
It’s easy to say that you have a high tolerance for risk when stocks go up. But you have to be able to tolerate the fluctuations that inevitably come with investing over time.
So review your holdings to make sure they are still in line with your risk tolerance for a path that may be clearer in the future. And while you’re at it, find out what “losing” money means to you.
“There are many definitions of risk and loss,” Benihoff said.
For example, if you keep money in a savings account or CD, inflation will likely outweigh any interest you earn. So while you keep your capital, you lose purchasing power over time.
Then again, if it’s important to keep your capital for more than a year or two than risk losing any of it – which might happen when you invest in stocks – that inflation-based loss may be worth it to you because you get what Benihoff calls” Going back to sleep easily.
However, for long-term goals, find out how comfortable you are with taking some risks to get a greater return and prevent inflation from eating up your savings and earnings.
“Over time, you will be better off and safer as a person if you can grow your wealth,” Adam said.
Rebalance your wallet
Given the record stock returns of the past few years, now is the time to rebalance your portfolio if you haven’t done so in a while.
For example, Adam said, you may be overweight in your growth stock. To help stabilize your returns in the future, I suggested perhaps reallocating some of the money into stocks of slower-growing value and paying dividends through a mutual fund.
And check to see that you have at least some exposure to the bonds. While inflation has led to the worst quarterly yield on high-quality bonds in 40 years, don’t count it.
“If a recession is caused by aggressive rate increases by the Fed to suppress inflation, bonds are likely to do well,” Benihoff said. “Recessions tend to be kinder to higher-quality bonds than they are to stocks.”
Make new investments slowly
If you have a large sum – perhaps you just sold your business or home, or received a large inheritance or bonus – you may be wondering what to do with it now.
Given all the global uncertainty, Adam recommends investing them in smaller portions periodically – eg, every month for a certain period of time – rather than investing them all at once.
“Make space for your investments over time because this week’s news will be different from next week’s news,” she said.
keep calm Do your best. Then “let’s go”
Whatever the news today, building financial security over time requires a calm and steady hand.
“Don’t let your feelings about the economy or the markets sabotage your long-term growth. Stay invested, stay disciplined. History shows that what people – or even experts – think in the market is usually wrong. The best way to achieve your long-term goals is to just keep investing. And stick to your customization,” Adam said.
Doing so will help minimize any damage an approximate market could cause in 2022.
“If you build an appropriately diversified portfolio that matches your time horizon and risk tolerance, the recent market decline is likely to be just a beacon in your long-term investment plan,” Williams said.
Also remember: it is impossible to make perfect choices because no one has complete information.
“Gather your facts. Try to make the best decision based on those facts as well as your individual goals and risk tolerance.” Adam said. Then she added, “Let’s go.”