Strategies for Navigating a Market Downturn

While markets were at an all-time high at the beginning of this year, we are now experiencing a market downturn with the rising rate of inflation and interest rates. These factors have a ripple effect on the market, resulting in things like mortgage rates and borrowing costs going up and investors reassessing their portfolios. In these times of uncertainty, it’s important to focus on the long-term perspective and control what you can control. How you respond to market volatility can play a critical role in how you come out on the other side of things. 

Here are six simple strategies to help you navigate these times, keep your financial strategy on track, position yourself for long-term success, and potentially even take advantage of the downturn. 

1. Maintain Your Long-Term Focus

Remaining focused and disciplined on your long-term financial strategy can feel scary during times of volatility, but history has shown that those who commit to weathering the storm eventually are well rewarded for their patience. 

2. Trust Your Plan

In times of uncertainty and a down market, often times peoples’ first instinct is to do something drastic to counteract. However, doing nothing is usually the best course of action. The most effective way to remain calm and collected during a market downturn is to ensure you create a financial plan that you understand and trust. It’s important to remind yourself of the big picture at hand versus what is happening at the moment. 

3. Ignore the Noise

During these trying times it’s important to always take what we hear with a grain of salt. Often times the end goal for news outlets, social media, and financial media is simply attention because attention equals money. It’s important to try to drown out the noise unless it is coming from a financial advisor you trust. 

4. Have an Emergency Fund Available

Although you aren’t able to control the market, you can control how well you’re prepared to handle turbulent times. Market downturn or not, you should always have an emergency savings fund accounted for that would help cover 6-12 months’ worth of expenses. Having this safety net readily available is especially important during a down market and helps protect you from having to liquidate investments at lower values in order to generate income. 

5. Take Advantage of Market Downturns

While intimidating, a market downturn can provide investors with some unique opportunities to take advantage of. 

1. Rebalance your portfolio: get back to your target portfolio of how much you want to have in stocks, bonds, and cash. 

2. Collect losses from your portfolio with tax-loss harvesting: Tax-loss harvesting is a strategy performed by investors who want to reduce capital gains taxes. In tax-loss harvesting, investors sell securities that are down below their cost basis to offset gains made from securities sold above their cost basis.

3. Buy into a down market: as a net buyer of stocks (for instance, a 401k contribution), you are better office if prices are down, as you’re getting more for your money and allowing you to invest your money for cheaper. 

 6. Prepare for the Next Downturn 

It’s inevitable that there will always be another downturn in one’s lifetime, so taking the time to prepare and be ready for the next one is important. A couple of ways to prepare for the next downturn are automating your investments and allowing yourself more financial cushion. When the next downturn occurs, you don’t want to have all your income dedicated to debt payments but rather have some cash saved up and ready to assist you through those tumultuous times.

The Bottom Line: Stay Focused on Your Financial Plan

The bottom line when it comes to experiencing a market downturn is to stay focused on your financial plans. Market volatility will come and go, but if you’re prepared with a well-constructed and comprehensive financial plan, you can ride the wave of uncertainty and feel confident that you are staying on track toward achieving your long-term financial goals. If you’re still feeling uneasy and would like the help of a financial advisor, reach out to Voyage to ensure your plan is on the right track. We’re always here to help provide advice and guidance as you work toward your financial goals, especially during times of uncertainty.