by Michael Tarsala
Now is the time to pay MORE attention to the markets and to your investment accounts — not less.
I know the temptations when the markets get ugly. The last thing on your mind is thinking about how your money is working for you. You might not even want to open your account statements just to avoid a letdown!
Yet now is the time to be sure you have the right plan of action to handle a possible downturn.
Here are the three reasons to consider taking action today, and not falling into complacency:
1) Now is the worst time to underperform
Of all the reasons, this one is by far the most important: You don’t want to lag the market when it’s in deep decline. It’s just the way percentages work. Lose 30% of a $1 million portfolio during a rough patch, and it will take more than a 42% gain just to break even. With an average gain of 6% a year, it would take you more than six years just to get back to where you started.
So that’s why beating the market in a downtrend is more important than beating it in an uptrend.
Ideally, you were set up before the current decline with a manager that tends to have low max drawdowns. That is, their strategy has done better than the overall market in past big declines.
If you do not have a manager that has underperformed in the past swoons, call us. It’s one of the reasons you might consider switching to someone else. We can help you find a manager that fits your risk profile and style, and also has a track record of doing better than peers and/or the market in past downturns.
2) That said, pulling money now could be a mistake
Pulling all your money out of the markets can set you up for one of the most common mistakes that individual investors continue to make: They still buy high and sell low.
The best managers, in my mind, will stick with conservative investments for now. But they will be ready to pounce on more aggressive opportunities when volatility begins to decline and when defensive sectors including utilities are no longer outperforming. Smart managers are already watching for sentiment shifts and for a potential S&P 500 turnaround as soon as the 1220 level.
3) It’s time to make 100% sure you are still on track
Now is a very good time to be sure you and your adviser are on the same page. Your adviser should be able to tell you where you are as part of a long-term plan, and if your investments are keeping you on track.
As always, you should be provided with all the details necessary to make your own determination about how your investments are performing and what you are being charged. And if you don’t have your own adviser, you can talk to us. We can help you create a diversified portfolio.
If you can, I also think it’s a good idea to get to know your investment manager. You don’t need to golf together. But you should understand your manager’s allocation strategy, what portfolio actions may be upcoming, and under what conditions he or she may drop a stock or an entire asset class.
You can find many of those details on the manager pages for each of our Covestor models.