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Any market drop can cause anxiety and fear in even the most savviest of investors. When market downturns happen, you can expect a lot of fear-inducing headlines that can scare consumers into making quick financial decisions. It can be difficult to discern what is trustworthy news and what is just hype. To stay calm and weather any financial market downturn, here are some suggestions to help you ride out the storm.
Don’t panic
The first thing many people do when they receive negative news is to try to counteract it. Acting rashly can have serious consequences. Therefore, it’s important to not panic when you hear about a market downturn. Instead, take a deep breath and some time to evaluate your financial situation.
You may want to consider your personal finance habits, your money mindset, and evaluate your budget. Look for opportunities to make small changes that help you to feel more secure during a financial market storm. You may also want to make time to speak with people you trust including your financial advisor or financial planner and any investment advisors that you may have. Your team of financial experts can help support you and guide you through this tumultuous time.
Think long-term
While the economic downturn might seem top of mind, you should set your sights far beyond the current situation. While your assets might be taking a short-term hit, the market will rise again. For example, if your retirement accounts saw a decrease in value but retirement is still a decade or two away, you likely have nothing to worry about.
If you’re concerned, you should speak with your financial planner. They will be able to help you evaluate your long- and short-term goals to decide if you should make any changes to your financial plan. Then, they will not only guide you through the process but often take on the burden of making the adjustments.
Diversify your portfolio
You’ve probably heard before not to put all your eggs in one basket. This is especially true when it comes to growing your financial assets. Your portfolio should have a good mix of stocks and bonds, and a good mix of assets that represent different markets.
For example, you might want to have a mix of both foreign and domestic stocks, as well as both small and large companies in your portfolio. Your financial planner can help you to decide what the best investment mix is for your portfolio based on your time horizon, risk tolerance, and financial goals.
Build an emergency fund
One of the first steps to financial security is to have an emergency fund. Setting money aside in an emergency fund will help you prepare for unexpected expenses. For instance, if you lose your job or lose some money in the market, your emergency fund can help pay for your expenses for a few months while you get back on track.
Most experts recommend having at least three months of expenses set aside in case of emergencies. If this number seems unsurmountable, start by creating benchmarks. For example, you might want to set a goal of saving $1,000 in the next several months.
To help you stay accountable for creating an emergency fund, you can set up automatic transfers from your checking account to your savings account. This will automate your savings and make it easy to keep track of. You may want to consider keeping this fund in a high-yield savings account to maximize interest and help your money grow.
Be sure not to pull from the emergency fund unless you have a legitimate financial emergency. If you do not have any money to put into an emergency fund, you might want to consider creating a new stream of income or cutting back on some of your other expenses. Setting funds aside will help you remain financially confident while continuing to weather a financial market downturn.
Create multiple streams of income
If your job is your only stream of income, you should consider diversifying your income streams. The good news is, your retirement fund will likely grow over time, so this is one stream of income that you can begin to pull from once you reach your golden years.
Other streams of income include dividend-yielding stocks, taking on a side gig, or income from a rental property. These additional income streams come in handy when experiencing an economic downturn because it can create long-term stability. If one of your income streams isn’t performing, you can rely on the others to help to keep you afloat through the financial storm.
Minimize your expenses
It’s always wise to live within your means. However, if the market downturn is squeezing your means, you may want to consider ways in which you can downsize your lifestyle. Downsizing is something that you may want to start before you must as it can take a lot of time and effort. Ultimately, it’s worth it to downsize because it can provide a more robust lifestyle in retirement.
Downsizing might mean down-scaling your home to have a smaller mortgage, selling additional assets such as cars or boats, or simply decreasing the amount you spend on dining out each month. You may also want to look at your budget to see where you’re wasting money or overspending. When you decrease what you’re spending, you can reallocate the money towards your retirement fund or other assets so that you can have a more financially sound retirement.
Stay away from financial noise
If watching the news or reading articles is causing you to panic, you should cut those mediums out. While media can be valuable sources of news, there is no reason to take on additional anxiety during a financial downturn. The market will rise again in the future, and these sources won’t help you to move forward financially.
Instead, if you need financial news or advice, have a conversation with your financial planner. You and your financial planner can take the time to understand what’s happening in the market, where you stand financially, and the best ways to move forward.
Bottom line: Weather any financial market downturn
By using the tips above, you can stay calm and weather any financial market downturn. At the end of the day, a financial market downturn can seem like a huge financial setback. However, when you take time to evaluate your financial situation before you act, you create the opportunity to move forward with a stronger financial plan than before.
As in any tumultuous time, it is wise to consult with an expert. Our team is ready to assist you with any retirement questions that you may have when creating a smooth path to retirement.
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