One of the most common questions I get asked is, “What should I do to prepare for a market correction?” And the answer should be, “Do nothing differently.” because hopefully you’re already practicing sound financial principles, that automatically have you in a defensive position for when the storms arrive.
And the storms will arrive. Do not be naive in thinking that stable, balanced markets will persist forever. Market corrections will happen, crises will come, and you will not know in advance which investment will do well and which will fail. Furthermore, no one knows the timing of when these problems will arise.
While it is true that some people can predict events with various degrees of certainty based on market research and data, in the end, only the Lord knows the timing, duration and final impact. Anyone who claims otherwise should be regarded with suspicion.
Sound financial principles that will assist in preparing you for a market correction include, but are not limited to:
- Living within your means. This includes having a spending plan with a reasonable degree of flexibility.
- Ensuring your debt is manageable and you have a clear plan to pay it back.
- Having a reasonable amount of savings quickly available in the event of an emergency or if your income is interrupted.
- Ensuring you know your portfolio risk exposure and that it’s appropriate for your circumstances.
Following these basic points can help you build enough flexibility in your financial situation to weather the storms and avoid devastating losses.
Maria Dawes, Portfolio Manager
Capstone Private Wealth