Market Corrections Are Inevitable. What Can You Do To Protect Your Wealth When They Happen?
“Don’t let good news about the post-pandemic economic recovery lull you into complacency. Long-term thinking is necessary to protect your wealth against downturns.”- Brian Swerdlow
Ups and downs in an economy are frequent and inevitable. Market corrections often seem to come out of the blue. Still, they are often presaged by a glut of overvalued stocks and “irrational exuberance” by investors. Sometimes, though, even seemingly minor events can trigger a downturn, catching many of us by surprise.
For those within a few years of retirement or already retired, a stock market correction could create losses in your portfolio from which you may not have time to recover. That’s why I encourage my clients to do as much as possible to protect themselves from a potential market crash. Becoming a more long-term thinker and taking a few key actions to safeguard your wealth will help you gain greater peace of mind when things get turbulent.
Understand exactly why you are afraid of a market crash.
What is it about potential market downturns that keeps you awake at night? Are you close to retirement and worried about losing money you can’t earn back? Are you at a place in your life where you can’t afford to lose a single cent?
Every market correction is different, and the effects on your wealth will also differ, depending on where you are on the timeline.
Most people are more fearful of market downturns the closer they are to retirement age. Another thing that occurs is that many people become less accepting of risk as they grow older. A heart-to-heart with your financial advisor or retirement and income specialist can help you understand your money mindset and design a long-term strategy that aligns accordingly.
You may need to tweak your current portfolio.
It’s impossible to know precisely when the stock market will falter or for how long any correction will last. That’s why it is so critical to sit down with an expert and take an unflinching look at your investments and financial plan. The plan you made ten years ago may not serve you well as you grow older. Your blueprint may not be balanced enough to offset market downturns. For example, you could have too many or too few equities, no safe money products, or too much in cash. Your current matrix may not reflect your appetite for and ability to absorb risk.
If you work, take advantage of any employer-sponsored plan.
If your work offers a qualified plan, such as a 401k or IRA, be sure you contribute at least enough to trigger any employer match offered. As long as you still have enough money to take care of your basic needs and pay down debt, putting more money into your 401k might mean a more significant upside once the stock market bounces back. Talk to your advisor to see if contributing the maximum amount might work in your particular circumstance.
Here are some other ways to bolster your retirement savings.
Seek out safe money products, such as life insurance, bonds, and annuities. There are specially-designed life insurance products, for example, that provide some measure of growth and give you liquidity and control of your money.
Annuities, which are more flexible and customizable than you might imagine, provide you with a contractually guaranteed income stream that you cannot outlive. Although they have some risks, annuities are usually considered much safer than stocks and are ideal for complementing your Social Security and any pensions you may receive. There are also specially-designed life insurance products that give you liquidity and control of your money and can be a source of lifetime, tax-free income.
The Bottom Line: Market volatility is baked into our economy. You cannot avoid corrections and downturns. However, you can take steps to ensure that your retirement nest egg is diverse, resilient, and balanced enough to rebound in the advent of a stock market correction. Spend some time with your advisor to ensure your portfolio is ready for anything the market might send your way.