How Do I Protect Gains During Market Corrections?

How Do I Protect Gains During Market Corrections?

August 15, 2019

We often hear from clients who want to know how their hard-earned investment gains will withstand market corrections. Chief Investment Officer Jim Lowell and Equity Research Analyst Kate Austin discussed this topic in our recent quarterly webinar*: Tariffs, Trade and Trump. Please enjoy the excerpt below and click here for the full webinar replay to hear more.

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Kate Austin: It’s more a matter of when, not if, we get a correction or a recession, and unfortunately, there’s no one-size-fits-all answer. Everyone’s risk tolerance and financial plan is different. The most important thing to remember is that if you have a well-balanced portfolio, one with stocks, bonds and cash, it is made for these types of situations.

That portfolio is allocated to collect some of the upside when markets are doing well and protect on the downside when markets are not doing so well—proportionate to the percentage of bonds that you have. If you’re really concerned, I’d try and talk with your adviser and make sure that your allocation to stocks, bonds and cash is suited to your risk appetite.

Jim Lowell: When you say look at your allocation, to stocks, bonds and cash, for many of our clients, they’re going to be hoping that we’re doing that for them, and sort of the emotional question is, what’s the trigger? Is it if you’re feeling nervous about some areas? About the potential for a market correction? Is that a great time to reach out to us?

Kate Austin: Definitely.

Jim Lowell: And say, “Am I prepared?” Is that really what you want to ask yourself?

Kate Austin: You’re going to have to just ask yourself too, “How would I feel if my portfolio fell 15%?” If you’re not going to be able to sleep at night, call your adviser or call us, that’s why we’re here, that’s what we’re here for.

Jim Lowell: Absolutely. For the investment side of your portfolio, by which I mean, where you’re looking to grow your wealth over a long-term time period, that’s one oar in the water. The other oar is how are you going to defend and safeguard all of the wealth that you’ve managed to build? And we are, of course, experts at having both oars in those waters.

Well, again, part of what we’re constantly doing, if we’re doing our job well—and if we have aligned our portfolios with your specific risk tolerances and investment interest—is to be able to build portfolios that address both the psychological and the market impacts of a real market downturn, whether it’s sustained or short-lived.

We always run with buffers in almost all of our portfolios, even our long-term growth-oriented portfolios, because we cannot predict where the market is going to end [up any given] day, let alone a week, a month or a quarter. All we do know is that over time, certainly having some bonds in your portfolio, maybe even some cash, helps smooth out the day-to-day, the weekly, the monthly volatility that can absolutely be unnerving.

And we would suspect, frankly, it will feel a lot more unnerving this go-around for a few reasons. One, we have gone a long time without any sort of sustained market downturn. Ten years into an expansion is a historic moment. And secondly, as soon as we do take a turn for the worse, I think the ghosts of 2008 and 2009, which we have all put in the far closet of our investment houses, are likely going to come out and begin to haunt our clients’ emotional sensitivity to a market downturn. So our job is to be here, to be steadfast, to be calm, cool and collected to make sure that if you have any questions, we address them instantaneously and directly, both in terms of how we have positioned your portfolio but [whether you] may need to reallocate if you’re feeling that you’d rather safeguard more of your assets than grow more of your assets.

It’s a good question to always review and ask.

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Click here for direct access to a replay of Tariffs, Trade and Trump. Please contact us if you would like to learn more about our comprehensive wealth management solutions.


*Webinar recorded after the market closed on July 24, 2019.

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