Suggested steps to minimise the impact
As we reported in part one of this blog series, we’re currently in a bear market, defined as a stock market downturn of 20% or more. We previously outlined some, though not all, of the factors that precipitate a bear market.
Today, we’d like to discuss some practical approaches designed to minimise the damage bear markets inflict. These are not solutions, but certainly steps you can take to help you weather the storm.
They’re simple steps – preferably to discuss with an advisor at your credit union – that can help you manage what can all too easily spiral into the unmanageable.
- Recognize reality. This is psychological, but necessary. Don’t liquidate your portfolio but temper your expectations.
- Higher interest rates are here. If your holdings are geared to fixed income investments, you won’t be affected that much. But if your portfolio is full of growth stocks, there’s a headwind happening that will deliver paper losses. Be prepared, but don’t panic.
- Live within your means. Audit your expenses and eliminate all but the most necessary.
- If you’re a retiree, check your retirement savings withdrawal rate. Unless an advisor has told you otherwise, respect the 4% rule – the assumption that a withdrawal of 4% of retirement capital is safe under most circumstances. If you can reduce that rate, do so.
- Diversify. Diversify your portfolio if you haven’t already performed that task. Putting all your eggs in one basket is rarely a good idea, especially now. We recommend doing this with the guidance of a financial advisor.
- Consider adding new income. A part-time job might not be a bad idea, especially since many companies are suffering from a talent shortage.
- Protect the income you have. Got an income property? Make sure your tenant is happy. If you’ve been procrastinating about suggesting a low-cost upgrade, bite the bullet and do it now.
- There’s an expression out there called sweeping up the dirt. That means selling positions in your portfolio that have been consistently losing. Selling losing positions can generate tax savings. Talk to your financial advisor and accountant about tax loss selling.
- Perform a debt check. Debt can be a useful, though dangerous, financial tool. But right now – as interest rates rise – it’s a disaster waiting to happen. Eliminate as many of those debts as you can.
- Stick with investments you know and can trust. Quality stocks – in well-established, dividend-paying corporations – are hard to beat. Wild bets are out! Again, speak to your advisor.
- Remember, every cloud has a silver lining. Now is the time when the share prices of top-quality stocks often go on sale. Think contrarian. Think opportunity when everyone else is thinking crisis. The best investment minds in history think like this. Consider being one of them.
- Get advice. Seek the counsel of your credit union advisor, a professional with whom you can have a reassuring strategic conversation, using these 12 principles as talking points. We recommend speaking to our trusted partners: Coastal Community Private Wealth Group, Coastal Community Credit Union and Interior Savings Credit Union.
There’s an expression: “When the going gets tough, the tough get going.” It means that when difficulties emerge on the horizon, be proactive. That’s what the situation we’re in right now demands – but as history has shown, this too shall pass.