All Articles

An Investor’s Guide to Surviving Market Declines

At the time of this writing, the S&P 500 has slipped into what we call a “correction.” That means the index that tracks the performance of 500 large U.S. companies listed on the stock exchanges has fallen 10 percent off of their highs.

During these periods of volatility and uncertainty, it’s easy to have doubts, be worried and become nervous about your long-term plan. So, here are five suggestions for how to survive market declines because they are inevitable.

  1. Declines Are Common and Temporary. By their very nature, market declines can instigate a wide array of behaviors. Most notably though, they can cause behavior that fills us with a lot of different emotions including panic, dread and fear. As an investor, these types of emotions rarely lead to positive actions. Realizing that market declines are inevitable, remember that they, too, are a normal part of the investment cycle and something you just have to accept. 
  • Keep Your Perspective. There are studies that show that investors place much more emphasis on losses in recent events than they do on long-term realities. It is often helpful to take a step back to see where you started and where you are now, and put the decline into its proper perspective. Even in the midst of these market declines, you’ll likely be rewarded over time.
  • Don’t Try and Time the Market. Research shows that losses feel twice as bad as gains feel good. And so it’s understandable that we sometimes let our emotions dictate our behavior when we are experiencing a lot of negativity. However, it is important to understand that running away from the market might reduce some losses in the short term, but it’s most likely going to mean you are going to lose out on the gains when things eventually recover. And they will eventually recover.

The best days in the market are often within two weeks of the worst days, so it is very difficult to time the market. In fact, if we knew how to do that, everyone would be doing it. Just stay invested. Sitting on your hands and doing nothing is highly underrated.

  • Partner with World-Class Managers. Look for managers with consistent results through multiple market cycles, and maintain a diversified portfolio of owning different investments. World-class managers with proven track records can help reduce the volatility and the risk in your portfolio during challenging times like this. Invest for the long term whether during negative downturns or when things are going up as well.
  • Understand That Emotions Cloud Your Judgment. We often make poor decisions when we let our emotions take over, so stay focused on your goals. This is where I think having a financial advisor is extremely important. Having someone who can look at things from a more objective point of view, and who can take the emotions out of the decision-making process can help you stay on track when it is difficult to do.

Advisors Wear a Lot of Hats

Thinking back to periods of extreme volatility like we experienced in March 2020, our primary role during that period was that of psychologist rather than financial advisor – and I mean that in a respectful way – because clients needed a trusted friend, confidant, and someone to turn to and rely on.

I am positive when I say having someone you can call and talk to when you’re emotional – and I don’t think it’s wrong to be emotional when it comes to your money – is the time when having a financial professional by your side is incredibly valuable.

In just the last 24 months, it’s like we’ve seen it all; clearly, it’s been a very, very difficult time to be an investor. On the other hand, it’s also been an easy time to be an investor. I think a good piece of advice is to not get too high or get too low, because like everything else in life, we need balance to keep a proper perspective on things.

Tomorrow will be Better

As an investor, and even as an advisor, it’s not unusual to think this way. We are all human. And we should recognize and understand what we do control and what we don’t control. For example, you can control your emotions and your behavior. You can control your time horizon and how long you plan on investing the money for.

But you cannot control the returns. Knowing this, and keeping this in perspective will help you control your emotions.

At Hefren-Tillotson, we continue to work with new clients and bring new people on. I think it is a great time to consider becoming a new client and working with a financial advisor if you haven’t already. We understand it’s not always easy to go it alone—and you don’t have to—because the real value in having an advisor is found in challenging periods like these. And we can help.

Please contact me today at Hefren-Tillotson if you need clarity, to focus in on where you’ve been, where you are, where you want to go and when you want to get there in up periods as well as down. I would be happy to help.

DISCLAIMER: Past performance does not predict future results. This report is based on data obtained from sources we believe to be reliable. Hefren-Tillotson does not, nor any other party, guarantee the accuracy or completeness of this report or make any warranties regarding results obtained from its usage. All opinions and estimates included in this report constitute the firms judgment as of the date of this report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation to buy or sell the securities herein mentioned.

What can we help you find?