January 26th was the prior market peak. The S&P500 closed at 2873. Then came February’s technical correction which gave us a textbook 10% decline and a whole litany of “The End Is Nigh” catastrophism from the financial media. Today, as I write this, the S&P sits at 2772 – barely 3% off the previous high with a couple days left to go in the month.
February’s market swoon wasn’t the big one, but there WILL be another big one.
There are 10 things you should DO to prepare for it.
- Review your financial plan – make sure your financial goals and risks are aligned intelligently. Taking too little risk is just as bad as taking too much.
- Re-think your risk. Consider what your likely drawdown risk is and ask yourself if you will panic… REALLY important to be honest here. If you can’t stomach the volatility, you need to commit to more savings.
- Consider your regret tendencies – which will you regret more… being in it when it goes down or being out if it continues up?
- Rebalance your portfolio according to your plan.
- Re-affirm your Dollar Cost Averaging (DCA) practice – review the benefits of DCA through downturns?
- Re-consider your investment process… is it really a robust ‘process’ or are you relying on being right?
- Reconsider the holdings you KNOW you shouldn’t own – (levered index, cryptocurrency, etc.) – see #6
- Definitely get off of margin (this SHOULD go without saying)
- Rebuild your Emergency Fund – we recommend a minimum of 3 months (if you are starting out) increasing to 2 years (if you are in or close to retirement) of expenses in CASH on the sidelines
- Build some excess cash that you can deploy if the buying opportunity of a lifetime should come to pass (like it did in 2000 and did again in 2008).
These are the timeless important personal finance actions to take…
So you are always prepared…
Regardless of markets.