No one has a crystal ball that can predict what the market will do in the future, and that’s exactly why there’s so much confusion right now. The markets are up one minute and down the next with talk of trade wars, slowing economic growth and changes in monetary policy. When no one can tell where the market is headed, a lot of people want to make sure their money is protected for whatever comes next.
This is a conversation I’m having a lot these days with my clients. They’re asking what we’re doing in case the markets take a significant dip. Well rest assured, at Fort Pitt Capital Group we prepare our clients for any scenario. But let’s dive into this and look at what you can do now so that you are better prepared if the markets do take a long lasting trip down. If you’ve ever heard the phrase, “make hay while the sun shines”, that’s what you should be doing now. It means to make good use of an opportunity while it lasts. Things are not bad right now, so now is exactly the time to position yourself so that if there is a downturn you’re not behind the eight ball.
Now is a great time to make sure you have an emergency savings fund, or to start building one. We typically recommend three to six months of expenses saved in that emergency fund, but maybe now is the time to err on the side of six months. Of course that’s if you’re still working. If you are at or near retirement age, you might not need as much in your emergency fund because you’re not going to get fired from your job and your emergency fund is built into your portfolio. If you’re a retiree, you may want to have some extra cash on hand for that unforeseen expenditure like new tires or a new HVAC system. However, you don’t need as much cash on hand as someone who has kids, a mortgage and relies on the money from their job to be able to operate the household.
To prepare for a market downturn, you should also consider paying down your debt. If you can prioritize this now then it’ll be less debt to worry about later if things do go south. You don’t necessarily need to have your debt completely paid off but at least get it to a manageable level. And now is probably not the time to take on more debt. You may not want to start that new kitchen remodel or stretch yourself too thin in any way.
Look for the fat in your budget now, we all have it. For example, if you subscribe to three streaming services, you can pair down to one now. It’s also beneficial to be aware of what subscription services you’re a part of so that you know which expenses can be cut first if your budget needs to tighten. You don’t want to not enjoy life but just know where you can cut if you need to.
Now if someone is in great shape and has no debt, a robust emergency fund and they live well within their means, they can still prepare for a downturn too. A person in this situation should get ready to be an opportunist. If a downturn does come, there will inevitably be people who need to sell what they own. This is the time to jump in first, take advantage and buy for cheap whether it be real estate or something else.
If you are already a client of Fort Pitt Capital Group, you already have an investment plan in place that accounts for market volatility and possible down turns. We prepare and plan for these scenarios so we don’t have to react to them. And if you know someone who doesn’t have an investment plan in place, send them our way so we can help them prepare for the future too. Especially someone who is starting to think about retirement, that’s the time to make sure you have everything in order. If things go south and you don’t have a plan that’s when it can get scary.