In two days time the market has declined about 6%. The Dow Jones Industrial Average (DJIA) specifically has dropped just about 900 points. Now when the market goes down this much, it can put the investing public in a state of panic. There needs to be a game plan set in place for times when the market is in a decline that is where the professionals come in.
For the investing professionals in the finance industry, there are a number of questions that come to mind. Will the market continue to decline? Should I invest now to take advantage of the lower prices? Where should I put my client’s money to protect their assets?
If it turns out that today and yesterday were just a fluke because people are worried about what the heck is going on in China, then Monday could be a very good opportunity to make back some profits. However, there is always chance the market is not yet done with its decline.
Generally speaking, in the past year, we have had days where the market has steadily declined and popped right back up a day or two later. However, in those instances, the decline in the market was 100 or 200 points on the DJIA. Now, because the DJIA has declined 358 and 530 points in two days, it could be less likely of an immediate reversal.
In order to prepare yourself for a very bear market, you should have a game plan in place to make your portfolio somewhat resistant to a bear market. One strategy would be to diversify your portfolio. Put your investments in a number of different investment products or asset classes. Asset classes and different investment products could be Real Estate, bonds, U.S. Treasury products, international products, etc.
If you were not prepared ahead of time, there are a few things that you can do to help reduce the impact of the down market. There are strategies that can be used during a down market that will help to protect your portfolio. However, since each individual’s situation is unique, you may want to speak with a financial professional as to which strategy is suitable for you. There are products that have historically performed well in a down market. However, past performance does not guarantee future results, and you should consult with a financial professional.
International products or ADRs are a good way to still invest, but also avoid the decline of a U.S. market. These are good to use for diversifying your portfolio, but are also good for investing while also avoiding the bad local market.
No matter the situation and no matter how to market is doing, you need to be ready for whatever the market and the economy have in store for the future. Please prepare in advance. One strategy to help protect your portfolio is diversification you may want to make sure you have a plan in place for any financial situation.
Diversification does not guarantee a profit or protection from losses in a declining market.
The opinions and forecasts expressed are those of the author, and my not actually come to pass. This information is subject to change at any time, based on market and other conditions and should not be construed as recommendation of any specific security or investment plan. Past performance does not guarantee future results.
Bear: A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment to be self-sustaining.
ADR: A negotiable certificate issued by a U.S. bank representing a specified number of shares (or one share) in a foreign stock that is traded on a U.S. exchange
Definitions are from Investopedia.