The best time to “react” to an economic meltdown is long before it happens. To manage your wealth through good times and bad, we emphasize planning and preparation as the foundation upon which to build.
When investors face bad economic (or other) news, the typical response is to sell stocks and flee to Treasuries or similar “safe harbor” holdings. Charts and graphs show the massive outflows in dramatic relief. Unfortunately, what’s really happening is that they are selling low (when stock prices are plummeting) and buying high (when Treasury rates are unattractive). When the coast looks clear, they perform the reverse, effectively buying high and selling low.
We would argue investors are engaging in this self-destructive behavior because they have not prepared for the downturn. Having a customized investment plan, preferably in writing, is like having a well-practiced fire drill in place. Instead of being left fearful and reactionary, you know what to do when the time comes. Your plan should specify desired asset allocations among risky and less-risky investments, as well as a rebalancing strategy for staying true to your goals amidst ever-changing market conditions. Then, when the markets turn frightful, we encourage you to rely on your plan, devised during calmer times, to see you through.
By the way, even for those already in the grips of a market downturn, it’s never too late to form a prudent plan for your next steps. Regardless of market conditions, we help investors assess their existing circumstances and set realistic goals for moving forward with improved confidence.