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It isn’t rosy in all Wall Street research departments.
Citigroup analysts are predicting a “full-on bear market” within months based on historical trends, according to a new note by equity strategist Robert Buckland. Here’s how you can protect your portfolio.
Assess Your Risk
Most everyone will suffer some losses in a bear market, but investors can decide now for themselves how much they are willing to risk.
“The first thing to do is check the current risk of the portfolio,” Koury said. “This will help the investor determine what would be the worst case scenario if the market were to go into a bear market. That means an investor will know how much they’re willing to lose and they can determine whether or not that is comfortable for them.”
Investors who don’t plan to make withdrawals from their portfolios for decades could leave their investments be until the next bull market, but investors planning on retiring within 10 years might want to preserve their wealth. Wise advisors like Koury recommend that investors should seek the help of either a financial planner or online services that can help guide them through tough times.
Set Aside What You Need To Live
In addition to limiting their exposure to equities, retirees and other investors living off of their portfolio’s returns also should prioritize their living expenses over investing when the market’s down.
“If you are taking income from your portfolio, always be sure you have a couple year’s worth of withdrawals in money market funds or short-term bonds,” said Edward Snyder, a certified financial planner at Oak Tree Advisors. “The rest of your portfolio should be diversified among major asset classes, including intermediate-term bonds. This should allow you to ride out a down market without having to sell stock investments while the market is down.”
Participating In A Bear Market Is Optional
“I do not currently believe a large bear market decline is imminent like many do today,” said Livio Nespoli of InterAnalyst, a 30-year financial advisor.
“Having 12 months of savings ready and waiting for you is certainly wise. However, it does not mean that your primary retirement accounts will avoid a 30 – 60% bear market decline. Remember, a 50% decline requires 100% just to get back to even. Thus, you must have a vehicle that can help you avoid the majority of the decline and capture all of the growth until the bear actually arrives on the scene.”
Mentally Prepare Yourself
Your own bad investment decisions can cost your portfolio as much as market losses, certified financial planner Patrick Amey thinks.
“Prepare yourself emotionally to ‘ride it out’ and tune out the noise,” Amey said.
It gets noisy in the midst of bear markets as many remember from 2008. So, have tools that can a help you remain calm, avoid guru opinions, or offer subjective emotional decision making. The price of the tools is inconsequential.