What do I do if the market goes down?

[Estimated time to read: 3 minutes]

We have a new starter in the admin team.

She’s eager to learn every aspect of the business.

I sat with her today to discuss my role, and she asked me a pertinent question…

“What do you tell clients to do if the market goes down, because that’s my biggest fear?”

It’s a great question – but probably not one many people feel comfortable asking.

We’re all supposed to know that successful investors hang in there - no matter what.

But even Jack Bogle fears a bear market.

Here’s what he told Tony Robbins:

“How do I feel when the market goes down 50%?  Honestly, I feel miserable. I get knots in my stomach. So, what do I do?  I get out a couple of my books on ‘staying the course’ and I re-read them.”

Can anyone predict when a market will crash?

Economist Dr. Roubini predicted the 2008 market meltdown.

Roubini Houdini – what a magician!

But he also predicted a market meltdown in 2004, 2005, 2006, 2007 and most recently, 2013.

In each case, he was entirely wrong.

In other words, no one can predict when a market will crash, surge or stagnate.

So what can we do about the ever-present fear and risk of a crash?

And what should you do if a market crashes?

10 facts to help you fly in the face of fear

Knowledge reduces fear.

Fact!

My role as an adviser to my clients is as much about knowledge sharing and emotion management, as it is about proactive wealth and investment management.

So if you’re like our new starter and silently afraid of a market crash or correction, and you’re unsure how to react if the market falls…

Here’s the knowledge you need to overcome your emotions: 

1. If a stock market falls by at least 10% that’s a correction – if it falls by at least 20%, then it’s a bear market.
2. Corrections have occurred, on average, every single year since 1900.
3. Most last less than 2 months.
4. 4 out of 5 corrections don’t turn into bear markets.
5. Between 1980 and 2015, despite the S&P500 experiencing average intra-year declines of 14.2%, 75% of the time it ended up achieving a positive return.
6. On average, bear markets happen every 3–5 years.
7. But bears have always given way to bulls - every single time over the last 75 years. – absolutely no exception!
8. You don’t have to look back too far to see the worst of times turn to the best of times.
9. For example, between 2007–2009 the S&P500 saw a 57.6% decline.
10. It bottomed out on March 9^th 2009 – and over the next 12 months, it surged 69.5%.

Never fear…we’re here!

In a comprehensive paper detailing the real value that fee-based chartered financial advisers deliver, Vanguard explains: -

“Because investing evokes emotion, advisors need to help their clients maintain a long-term perspective and a disciplined approach—the amount of potential value an advisor can add here is large.

“Most investors are aware of these time-tested principles, but the hard part of investing is sticking to them in the best and worst of times—that is where you, as a behavioral coach to your clients, can earn your fees and then some.”

So, in answer to my new colleague’s question: -

“What do you tell clients to do if the market goes down, because that’s my biggest fear?”

I simply said:

“I’d explain they can forget market noise, and just trust their adviser to help them maintain a long-term perspective and a disciplined approach – because that’s how they will remain a successful investor.”

Here’s how to choose the right type of adviser who will share knowledge and help you manage your fears, no matter which way the market moves.