6 wealth management tips for surviving a down market

If you’ve kept an eye on the news lately, you’re more than likely aware that economists predict a recession will hit America as early as 2020, if not by 2021. Many everyday investors and consumers panic in the face of financial downturns, forgetting every rule they know about wealth management.

Thankfully, panic isn’t your only choice. If you’re able to identify and understand your psychological triggers related to a downturn, you can avoid overly emotional reactions and make solid financial choices.

Understanding investor behaviors

Anxiety about a potential recession is already rising. One-third of Americans have already cut spending recently, and some of them have done so in anticipation of the downturn. Why? Because psychologically, we feel losses more powerfully than gains. And if you’re part of that 33%, hoarding cash is a choice you’re probably making to try to dull the pain of any financial losses you might encounter.

Plus, it doesn’t help to know that other people are putting money away because, in tough situations, you’re more likely to follow the herd mentality. Uncertainty and stress can lead you to make snap decisions, and if you know — or even think — a lot of other investors are taking one action, you might decide to follow suit.

Identifying the consequences of poor wealth management

But “I’m doing whatever they’re doing” doesn’t make for the most successful wealth management strategy. That tunnel vision means you aren’t analyzing all the available options and homing in on the strategy that’s best for you, no matter the financial forecast.

Switching your higher-risk investments with more conservative options, for example, might seem prudent if you’re not sure where the future may lead. But that move to a more conservative route can actually hurt more than the effects of a downturn. The market will bounce back, after all, and your higher-risk investment will pay off then.

Preparing for the worst

Reacting abruptly can have a more lasting negative impact on your finances than staying the course, so you need to prepare yourself to put the breaks on any snap financial decisions. Fortunately, you can take a number of steps to counteract the psychological effects of stress and uncertainty so you can weather a potential downturn effectively.

1. Talk to your financial team.

Knowing the facts and what the downturn means for your personal financial situation can minimize catastrophizing. Talk with your financial advisor, tax advisor, and attorney about joint solutions. A wealth management advisor — more specifically, an advisor who specializes in what we’ve termed Behavioral Wealth Management™ — can help you discuss solid strategies for protecting your assets. Having a full financial plan in place with your team will boost your confidence in the face of uncertainty.

2. Practice self-awareness.

You, not your anxiety, should be in the driver’s seat. Find activities that help regulate your emotions: exercising, sleeping, meditating, listening to music, and limiting exposure to the news can help. Try those strategies and figure out what works best for you. If you’re having trouble finding a good fit, consider reaching out to a therapist.

3. Activate your network.

Remember that wealth can come in many forms, from family and community ties to good health, talent, and more. You’re not alone in weathering the storm, so work within your network to figure out healthy ways to support one another. Don’t try to navigate the future on your own. Speak with your heirs about what you want for yourself and them. Make sure your family members have a basic understanding of finances so you’re all on the same page.

4. Stay flexible.

There are always more options than you think, so make sure you can pivot your plan to suit a changing world as well as make simple life changes. For instance, 58% of millennials are planning to make a change in their careers soon, and a new job means new benefits means a new version of your financial plan. One way you can be flexible with your financial strategy is to diversify your asset holdings. This principle is an oldie but a goodie because it works.

5. Create an income plan.

Consider how to convert your assets to income and what your total income will look like in the future. Take a complete inventory of your assets — cash, real estate, property, stocks, bonds, tradable stock, ownership in a business, etc. — and what they’re worth. In addition to boosting your confidence that a financial downturn won’t wipe you out because you have multiple income sources, this strategy can also help you avoid headwinds from income tax policy.

6. Insure against catastrophic loss.

No single event or action should be able to derail your entire financial plan, whether it’s a natural disaster, family emergency, recession, or something else. If you have goals you know you want to achieve, be proactive and insure what you can in order to protect yourself from catastrophe. You don’t want to get caught without protection: In 2018, insurance companies paid out $52 billion for losses due to natural disasters alone, and you wouldn’t want to pay that type of expense out of pocket.

Weathering the storm

Market volatility has happened before, and it will happen again. Learning to remain calm during periods of stress and uncertainty and following a strong wealth management plan are keys to surviving a downturn and continuing to work toward your goals. With help from a wealth management advisor, you can prepare to weather any financial storm.

(Featured image by DepositPhotos)

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DISCLAIMER: This article expresses my own ideas and opinions. Any information I have shared are from sources that I believe to be reliable and accurate. I did not receive any financial compensation for writing this post, nor do I own any shares in any company I’ve mentioned. I encourage any reader to do their own diligent research first before making any investment decisions.