Happy Halloween from Hunt Country Wealth Management.
As America gets ready to celebrate the scariest holiday of the year, we think it is a good time to offer some advice to help take the fear out of investing.
Your Financial Future Doesn’t Have to Be Scary.
A Bear Market is when the stock market declines 20% or more in one streak. There have been 10 Bear Markets since 1929, having an average decline of 45%.
Some people are nervous that we are nearing the next Bear Market because it has been 106 months since the end of the last Bear Market, only 7 months shy of the longest winning streak in stock market history.
No one knows when the next Bear Market will occur but don’t get tricked into thinking that the stock market will only go up. No stock market advance lasts forever and the time to prepare for a Bear Market is now, before it occurs, not after.
To prepare for the “Bear” here are some things you can do:
- Know your Risk Tolerance. You should have a realistic understanding of your ability to stomach swings in the value of your investments. If your current strategy is not in-line with your risk tolerance now is the time to make some adjustments. Past performance is no guarantee of future results but you should examine how your portfolio has responded in past bear markets. Are you prepared for those types of swings?
- Risk Management. If you are nearing or already in retirement Risk Management is essential and cannot be overemphasized. You should ensure that you are taking no more risk than is necessary to accomplish your goals. Work with a Financial Advisor that knows the A.R.T. of Risk Management. They can teach you how to Avoid, Retain, or Transfer Risk so that you have the best opportunity to reach your retirement goals no matter what kind of market cycle you experience.
- This is the “Don’t put all your eggs in one basket” lesson. If you have your money spread over cash, stocks, bonds, real estate, and other investments you will likely have some portion of your portfolio that is performing well while other parts are going down. This gives you the opportunity to rebalance your investments by moving money from investments that have done well into those that have recently gone down. If done regularly, rebalancing has been shown to improve your overall returns without taking on additional risk1. It’s the old saying of “Sell High, Buy Low”. Diversification is one strategy that has demonstrated its value in Bear Markets time and again.
Don’t be average! The average investor has earned a paltry 2.30% over the last 20 years (1997-2016)2. During that same time period, the stock market as measured by the S&P 500 Composite Index experienced a 7.70% average annual return. That means that an unmanaged portfolio beat the average investor by 5.40% by doing nothing.
How not to be average? Rather than making decisions based on greed or fear, or chasing rising markets and running from declines make sure you have a sound disciplined investment plan.
Have a plan that is based on your goals and the necessary amount of risk you need to take to achieve them. Work with a good Financial Advisor to keep you on track. Also, patience. Always exercise patience. Being a good investor is less about timing the market as it is time in the market.
At Hunt Country Wealth Management, we are experts at helping our clients to manage their risks to pursue their goals. If you would like assistance with your investment strategy or would like to make sure your financial plan is ready for the next bear market please give us a call today.
If you want a fun scare this holiday for your little ghouls and goblins please join us for Old Town Winchester’s Spooktacular! The annual event returns to the Loudoun Street Mall on Saturday, October 28th with loads of fun for the whole family. Businesses along the mall participate in this popular free community event by handing out candy or small trinkets. The festivities begin with a pet costume parade at 11 a.m. organized by Posh Pets Boutique. The trick-or-treating begins at 2 p.m. and wraps up at 4 p.m. Hope to see you there!
The article was written by Chris Merchant for use by Hunt Country Wealth Management.
1Diversification seeks to reduce the volatility of a portfolio by investing in a variety of asset classes. Neither asset allocation nor diversification guarantees against market loss or greater or more consistent returns.
2Source: J.P. Morgan Asset Management: Guide to the Markets. U.S. Data are as of June 30, 2017.