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Posted on January 31, 2018

Surviving the Next Major Market Correction

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By Scott Ford, CEO, Founder & Wealth Advisor of Cornerstone Wealth Management Group

“Be fearful when others are greedy and greedy when others are fearful.”
~Warren Buffett


If you’ve kept an eye on the markets at all this year, you know that it’s been one of record highs. Just recently, the Dow broke the 24,000 mark for the first time, and the S&P 500 closed at a high of over 2,600.1 And then there’s the fact that we’re experiencing the second-longest bull market since 1929. At eight and a half years, many people wonder how much longer the market can climb before we enter a bear market.

When the numbers are rising, it’s easy to become complacent and expect the market to go on like this forever. But what goes up must come down. This is the ideal time for you to be proactive and take action to protect yourself and your hard-earned money. Here are some decisive steps to take today to set yourself up for a successful financial future.

1. Revisit Your Risk Tolerance

How much are you really willing to lose? We like to use the term “irreplaceable capital” when analyzing the amount of risk you have in your portfolio. Irreplaceable capital is the amount you are determined to protect at all costs. Irreplaceable capital strategies are all about protecting your downside while still allowing you to participate in some of the upside. This is especially important if you are within 5-7 years of retirement, because if you experience significant losses while also withdrawing income distributions, it could have a devastating effect on the longevity of your retirement savings. At Cornerstone Wealth Group, we use sophisticated software to determine your risk level and conduct a portfolio stress test on your current investments. Our goal is to make sure your financial goals are in line with your level of comfort in taking on risk.

2. Consider Alternative Strategies

Just because you’ve always invested in the S&P 500 doesn’t mean you can’t get creative now. If you want to protect your assets, think about moving into a short-term muni or corporate short-term bond ladder. You could also explore long/short equity or credit investments or even event-driven investing. These strategies are not market-driven, so you can tap into a decent yield without worrying about whether rates are going up or down.

3. Avoid Emotional Investing

One of the most important rules in investing is to refrain from making emotional decisions. Multiple studies have analyzed how our emotions affect our investing results, especially when we chase above-average returns. A 2015 DALBAR study revealed that investors’ decisions were the biggest reason for underperformance. Simply put, behavioral biases lead to poor investment decision-making.

4. Be Proactive With Your Retirement Accounts

Can you name the investments in your IRA or 401(k)? When was the last time your portfolio was updated or rebalanced? The truth is, people rarely login to their accounts. They set their allocations and forget about it. But just as life changes cause you to adjust your budget and lifestyle, market changes should provoke you to take control of your asset allocation. Here are some tips to get your retirement accounts in the best shape for a market correction:

  • Factor in your other assets when choosing allocation. If you have a separate investment account that also holds the same allocations, you won’t have enough diversification.
  • Don’t look at past returns and choose the successful ones. Buy where the market is going, not where it’s been.
  • Don’t avoid no-name funds. While choosing the bigger names in investing, such as Fidelity or Vanguard, may make you feel confident in your choices, some of the lesser-known names are built specifically for retirement plans. Do your research to determine what is best for your situation.
  • Be cautious about purchasing too much of your own company’s stock.
  • Reassess your default contribution rate. Have you changed your rate since you set up your account? There may be times when you need to decrease it, but there will also be opportunities to increase your contribution and put your finances ahead in long-run. Make it a habit to look at your finances regularly and find ways to increase your contribution rate.

5. Don’t Let Complacency Kill You

Even though the last financial crisis was less than a decade ago, debt for the average consumer has returned to pre-2008 levels. In fact, total household debt climbed to $12.73 trillion in the first three months of this year, which is not only higher than the $12.68 trillion peak hit in 2008, but it’s accelerating quickly.2 When things are going good, it’s easy to forget about the lessons learned in the past. The most important piece of advice we can give you is to have a personalized game plan for the future. Don’t get caught off guard when a correction hits, but take the time now to set up a plan and make it happen.

This is where we come in. At Cornerstone Wealth Management Group, we employ strategies and philosophies to help you gain control of your finances and put you in the best position possible to weather the storms of the markets. By creating comprehensive wealth management plans to guide you towards financial freedom, we help you create a work-life balance that prioritizes what is most important to you, while also giving financial confidence. To learn more, download our free report, Investment Process. To get started pursuing true wealth, schedule an appointment by clicking here now. If you have questions, you can reach me by phone at (301) 739-8505 or by email at scottf@cornerstonewealthgroup.com.

 

ABOUT SCOTT

Scott Ford is CEO, Founder and Wealth Advisor of Cornerstone Wealth Management Group, serving entrepreneurs, business owners, executives, and their families. The firm specializes in business liquidity strategies and SBA financing strategies. It is Scott’s mission to help his clients pursue financial freedom and live a balanced and fulfilled life.

Scott is a Wealth Advisor and Registered Financial Consultant (RFC). He was recognized as one of the 20 Rising Stars of Wealth Management by Private Asset Management Magazine in 2008 based upon assets managed of $1 million or more per client. Since 2005, Scott has been an active financial technical analyst.

Clients often choose to work with Scott because of his experience with the challenges business owners and executives face as well as his firm’s disciplined process. His personal and proactive approach is designed to bring clarity and simplicity to the complex issues of financial management. For over 20 years, he has been helping his clients define and pursue their own unique version of “True Wealth.”

Scott is the author of three books: Financial Jiu-Jitsu: A Fighter’s Guide to Conquering Your Finances, The Widow’s Wealth Map: Six Steps to Beginning Again, and the New York Times Bestseller, The Sustainable Edge: Fifteen Minutes a Week to a Richer Entrepreneurial Life.

 

  

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