The stock market just hit the longest bull run in its history, and that has people spooked.
The downward spiral seems inevitable and, of course, it is. That’s how the stock market works. But just because this bull has been going for so long, doesn’t mean you should unload all of your stocks for safer investments.
If nothing much has changed for you since you made your financial plan — your goals are still the same, you’re still employed, and so on — then you don’t need to do much.
The worst thing to do, as always, is try to time when the correction will occur. But if you think a drop in the market will stress you out, or if you’ll need to pull money soon, then you can tweak your strategy. Consider:
- Has your risk tolerance changed?
- How did you feel the last time the market fell? (That’d be 2008/2009)
- Can you handle a drop of 10 to 20 per cent?
- Do you have any goals coming up that you’ll need to tap your account for?
- Is your asset allocation still in line with your risk tolerance?
If you need to rebalance you should do so now, before the market dips and emotions come into play. Near retirement? You’ll want to have a decent amount of your nest egg in safer investments so you aren’t caught off guard in the first few years of retirement.
“Keeping a year’s worth of basic living expenses in cash may be helpful as a long-term strategy,” writes Tara Siegel Bernard in The New York Times. “It can keep retirees from locking in losses by having to sell investments when they are down.”
It’s also ideal to make sure you’re paying off debts now so you don’t go into retirement with them and have one more expense to worry about.
But these are questions you should always consider, not just when you think the market will tumble. Because none of us know for sure when that will be.