8 Things You Need to Know About Investing in Tough Markets

1) Understand Diversification – Don’t confuse quantity of investments with diversification. Proper diversification in its simplest form comes down to how much you have invested in anything classified as a stock and anything classified as bonds, fixed investments, or cash.
2) Your financial advisor, most financial media, Wall Street, your Mutual Fund company, etc. will always tell you to just hold on for the long-term. Sometimes that makes sense. However, there are times when it doesn’t make sense. Your response should be that long-term is fine. What can you do for me today to reduce risk and be more balanced?
3) Your financial advisor is probably not managing your money. They have invested it and are watching it decline. Make sure you understand the difference between investing money and investing then managing money. The latter helps you avoid risk.
4) If you have 100% in 10 stock funds, you have 100% in stocks with no diversification. Remember there are markets where it doesn’t matter how your stock is classified. There are environments where ALL stocks go down at the same time.
5) The salespeople marketing “guaranteed not to lose” investment annuity programs come out of the woodwork. Remember that you don’t get anything for free. If these programs were really as advertised, we would all be using them. The best advice I can give is to stay away unless an average of 4 to 5% a year for the rest of your life makes sense.
6) If you are going to reduce your stock positions, do so gradually and do so when the market goes through periods of strength.
7) If this is a bear market, they last on average 406 days with an average loss of a negative -30%.
8) Bear markets don’t fall in a straight line. They fall over time with a combination of stock market rallies and declines.

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