“A prudent person foresees danger and takes precautions. The simpleton goes blindly on and suffers the consequences.” – Proverbs 27:12
Every investor understands that the stock market has a rhythm. However, the difficulty lies in being able to predict the market’s cycles. The shrewdest investors are able to accurately identify these cycles and act accordingly. Imagine being able to go back in time to 2008 or 2001. Imagine if you acquired the assets that made money during those downturns.
In the past couple of months, the stock market has been at an all-time high. Yet every investor should ask themselves if they are ready for the next downturn. Keep reading to learn more about the stock market’s rhythm and some strategies that will help you when the market declines.
Stock Market Cycle
There are a number of cycles that affect the stock market. For instance, the presidential cycle and the “January effect” are two cycles that seem to affect stock market performance. Longer term cycles exist as well. Kondratiev cycles generally last sixty years. The Panic of 1873, the Great Depression, and the Great Recession are associated with the end of Kondratiev cycles.
Preparing for a Downturn
20 recessions occurred during the twentieth century—that’s an average of 1 recession every five years. The most recent US recession ended in 2009. Many economists have painted a bleak picture for 2017. Some of the most worrisome problems include “Europe’s weak banks, China’s distorted property market, [and] political uncertainty in the west” (Boskin). If you share economists’ fears and want to be prepared for the next downturn, there are three things you should think about:
- Manage Your Fears – Don’t let your emotions force you to make mistakes. One reason investors don’t see higher returns on their investments is due to emotions. Don’t let emotions cloud your decision making. When the market enters a downturn you need to carefully consider which assets you should acquire and which ones you should avoid.
- Diversify – How you divide your portfolio depends on a number of factors like how much risk you are comfortable with taking, your age, and your income level. However, in a downturn, it’s especially important to diversify. If you fail to diversify during a downturn, you could face serious consequences.
- Invest What You’re Willing To Lose – Careful investment is the key to surviving a downturn. Therefore, don’t invest money that you’re not willing to lose. Before you can invest you need to make sure that your living expenses are taken care of. During a downturn, the market can be very destructive. While you still want to make money, you also don’t want to be swept up in the destruction.
- Consult With A Financial Advisor – Speaking with a financial advisor is one of the best ways to prepare for a downturn. A knowledgeable financial advisor knows which assets are most likely to make money during downturns, and he or she can help you develop a strategy that is perfect for your situation. For more information visit Aspen Creek Wealth Strategies.