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3 Things You Should Think About When The Market Declines

July 29, 2021
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For many investors, there is nothing scarier than a dip in the markets.  Statistically, our stock markets tend to go up fairly slow and steady over a period of time.  When it comes time for investors to sell, the markets tend to go down extremely quickly, scaring long term investors into wondering whether it’s time for them to dump their investments before they lose everything!  Adding to the problem is the fact that we can’t ever really tell when the market is going to have that bad day.  This fact about our markets can cause people to lose more than they can afford by being overallocated to them, can cause them to make poor investment decisions trying to “time” the markets, or can cause them to not invest in the markets altogether, which can be devastating to a long-term saving strategy.  So how can we defend ourselves against making bad choices when we see on the news that the markets have had a bad run.  Let’s talk about 3 key questions that investors should consider when they see a rough patch in the markets that will help with the peace of mind needed.

How long is my investment horizon?

The first key point to identify is what goals you have as an investor and how long you have set for yourself to reach those goals.  A family trying to save for a child’s education may have a much shorter investment horizon for that goal opposed to someone saving for retirement.  Market downturns harm individuals with shorter horizons, and those individuals tend to worry more about downturns in the market (and typically follow the financial news closer!).  The most common and harmful mistake most novice investors make is to sell an investment AFTER the investment has already fallen.  This can be harmful for long-term investors, but can destroy investors with shorter investment horizons.  Longer-term investors have time to correct and overcome their poor timing.  Knowing your investment horizon and becoming comfortable with that plan allows us to focus on the second key question.

How are my investments allocated and does it match up with my risk tolerance?

Just like most investors have different goals and investment horizons, they also have very different feelings about risk.  How your assets are allocated are (by far) the most important consideration in how your overall portfolio will perform.  Yet, quite often, investors will worry mainly about the particular stocks that they own.  Why?  Because these are the assets that are the most covered in the news!  Finding out how you feel about risk will give you a good sense of how you feel about losing money during a market downturn.  Knowing this will allow you to get a better sense of how you should be invested from an asset allocation standpoint.  This will allow you to set up an investment strategy that should give you a proper amount of investment upside and protection from losses on investments that exceed your personal comfort level.  By having this comfort level established, you will feel less anxiety when you turn on the news and see that the Dow has dropped 3% in today’s market session.

Do I really know what I own?

Another issue that many investors face is a general lack of knowledge on the specific investments they make in their own portfolios.  A typical individual investor trying to invest and save for retirement have so many competing interests on their time.  They have careers, families, and activities all competing for free time.  With all of these things going on, only the very dedicated are spending the time needed to properly research an investment to learn about its strengths and weaknesses.  So often, when the asset declines in value, the common human brain response is to dump it and pick another.  The asset may have just had a bad day, but remains a great long-term asset.  That investor will never know!  Knowing your own investments is crucial to understanding whether it is truly a bad idea, a good idea that didn’t work out, or a good idea that needs to be given more time.  Another critical strategy is how to consider cash in an investor portfolio.  For investors with long horizons, often they invest to the full amount they can, leaving no cash.  As a result, there is no room to “buy into” the market downturn to get shares cheaper.  Lastly, most investors just simply don’t understand how all of their investments work together.  In cases like these, the best course of action is to seek out a profession to take a look at the portfolio and give them their opinion on things that are working well and things that could be changed to make things better. 

Keeping these three questions at the front of your mind when you see your investment value going down can really help to ease some of the anxiety and frustration you feel.  It’s never fun to watch an account go down in value, but the reality is that it will happen.  Understanding your timeline, how you are invested, and knowing how they work together is a really great plan that can give you some peace of mind when this eventually does happen.  Here at Resolute Wealth Management, we have a team in place to help clients identify their goals and understand how their investments work to give them the best opportunity to reach them.  If you would like more information on how to handle market downturns, need help constructing a financial plan to identify those goals, or simply want a free second opinion on your current portfolio, please reach out to us!  Enjoy the week!

Email: mbodenmiller@resolutewm.com

Phone: 937-489-7396

Website: www.resolutewm.com/contact

About Mitch:

Mitch works at Resolute Wealth Management as a Financial Consultant.  Mitch's primary role is to assist in delivering a professional level of service and support to our clients in all aspects of the planning and investment process.  Mitch specializes in working with clients to identify life goals and aspirations and in creating investment strategies that assist them in meeting their goals.

Mitch began his career assisting customers through his managerial roles in the retail sector with GameStop and later with Ohio CAT, a dealer network for Caterpillar machinery.  During that time, Mitch became passionate about providing a high level of customer service and discovered a passion for working with people.  Mitch loves working in personal finance and investment strategy and ultimately decided to change career paths to pursue an opportunity to use these skills to assist families to meet their goals and aspirations.  Mitch has 3 years of investment experience with local firms in the Dayton area, where his primary responsibilities were focused on supporting the operations of the firms as they worked with their clients.

Mitch graduated in 2018 from Wright State University with a Bachelor of Science degree in Finance with a focus on investments, and recently completed his MBA at The Ohio State University Fisher College of Business in December of 2020.  Mitch is currently a CFA Level 3 Candidate, and recently sat for the examination in May 2021.  Mitch currently lives in Fairborn, Ohio with his wife Lisa.