Twelve things you can’t control about the next market decline, and 13 things you can control.
As we near the half-way mark of the year, the MSCI world stock index is up about 1 percent for the year. So far, not a great year for your 401(k). Is it the end of the bull market? The beginning of the end? The middle or the end of the end? There is no way to be sure.
How to prepare for a market decline
Regular readers of this column will remember that one of my most strongly held beliefs is that behavior is the most important thing to determine your financial success. And I’m not alone. There is now an entire area of academic study called Behavioral Finance.
So what are the behaviors you need to get through this phase of the market cycle?
First let’s remember that you can only take action on things you can control. In the modern age, we get bombarded with a lot of information. A lot of messages are designed to get us to do something. But often the best response is to not take action over things you cannot control anyway. Remember, there is a lot of stuff you cannot control. For example:
- Market moves
- Corporate profits
- Federal Reserve interest-rate decisions
- Nonfarm payrolls
- Gross domestic product
- Brexit, Grexit, Italeave
- Middle East peace
- Home or retail sales
- Presidential tweets
I suggest you spend your energy on the things over which you do have some control. For example:
- Your hopes, expectations, motivations, goals
- Creating a long-term financial plan
- Beginning to save into the 401(k) at work and get the free matching money
- Starting to save for large purchases instead of buying on credit
- Understanding how you pay for your investments, advice and related services
- Understanding what you can do to reduce your taxes next year
- Pay attention to what media you watch
- Reducing the amount of time you spend consuming media
- Educating yourself on market cycles. Get a feel for how, and when they go up and down
- What books you read
- What your timeline is for reaching important financial goals
- What sacrifices you are willing to make to reach your goals
- How you choose to react to market events
Regular readers will not be surprised by this next part:
To prepare for the coming market decline, it’s a great idea to invest in a comprehensive financial planning process. A good process should take a few weeks of your time and a little effort on your part. It should cover all aspects of your financial life:
- Cash flow
- Risk protection and insurance
- Wealth building strategies
- Investment management
- Retirement planning
- Tax planning
- Estate planning
A great start to an extremely useful comprehensive financial plan is to work with a CERTIFIED FINANCIAL PLANNER™ professional who is always their client’s advocate – a fiduciary advisor – and who only works for their clients – a fee-only advisor – to discuss and talk about your financial plan.
A CFP® professional can help you create a comprehensive financial plan that is driven by your goals and priorities. And it should address all aspects of your financial life. With a big-picture approach, you will get a meaningful understanding of how you are doing at meeting your goals. And you will get a personalized action plan for how to move forward.
Yes, I am a CFP® professional. I’m always a fiduciary and I only work on a fee basis. And, yes, I’m still taking on a few great families to be part of my financial planning practice.
If you want to talk about controlling what you can control in your financial life, call the office at 612-436-3770 or e-mail me at firstname.lastname@example.org. I am always happy to meet with people who are working on their financial plans. Dunncreek Advisors does not provide legal or tax advice, nor is this article intended to do so.