Common Sense Strategies For A Global Meltdown

Common Sense Strategies For A Global Meltdown

September 2016


Global stock markets are melting like the Wicked Witch in the Wizard of Oz.  As a result, retirement accounts are losing ground leaving many investors unsure of what to do next.  Should they ride it out and hope for the best?  Raise more cash by selling off some winners or losers?  Or buy more on the dip?

Questions like these surface when a major market move catches investors off guard.  Fortunately, some common sense answers can be found within a formula referred to as the 4T’s of investing:  Time, Temperament, Target, and Team.

1) Time

Time is an important consideration because the longer one has for stock market averages to work in their favor, the less short-term moves matter.  In other words, the Brexit will just be one of many issues investors will face in the next 10-20 years… and will likely lose its significance as time goes by.  Therefore, if time is on their side, downturns like this may be viewed as opportunities instead of obstacles.

However, if retirement is less than five years away, soon-to-be retirees may see things from a different perspective.  Based on the time frame in which they may need to access their savings, they don’t want to find their portfolios suddenly down 20-30% and be forced to use their remaining work years to catch back up.

In those cases, investors close to retirement may want to consider making gradual shifts in their asset allocation.  For example, exchanging growth oriented investments for value-based plays, or reducing their exposure to riskier asset classes such as emerging markets or small-cap stocks for less volatile fixed income options.

2) Temperament

One factor that can trump timing is investor temperament, or their investment personality.  Frankly, one of the biggest mistakes investors make is not being true to who they are and how they feel about the trade-offs between portfolio gains and losses.

I know 40 year olds who cringe at the idea of losing a single penny as well as investors in their late 70’s who laugh in the face of bear markets.  Most investors take some sort of risk tolerance questionnaire to figure out their asset allocation.  The results usually produce a portfolio mix that could range from 80% stocks and 20% bonds for some, or 60% bonds and 40% stocks for others.  Either way, risk tolerance questionnaires should only be considered a starting point.

Global meltdowns like this help people gauge if their asset allocation fits their temperament when they open their account statement.  If their jaw drops and they have an anxiety attack, it’s probably time to consider some additional changes.  However, if they just shrug it off as part of the overall investment process, no immediate changes may be necessary.  The key factor is understanding how each individual reacts, and then developing strategies that their true comfort level.

3) Targets

Investment targets also play an important role during a market slowdown.  Knowing what an investor is aiming for can prove to be a sanity saver during these times.  Surprisingly though, many individual investors don’t have written goals and therefore, struggle with what to do during times like this. Yes, they want to make money or save a certain percentage of their income, but need to be more definitive with an annual average undefinedrate of return and longer-term goals to reach certain dollar marks.

For example, an investor who has achieved low double-digit returns in the last two years may still be on track for their five year goals during a 10% correction.  Yet, the retiree who is withdrawing from his account, may need to shift some assets to cash in order to ensure his current income stream.

Right now the major indices are in the red for the year, giving back all their gains following the Brexit vote.  With five months of the year left and a hotly contested presidential election coming up, investors may need to adjust their performance goals, increase savings, adjust their asset allocation, or some combination of them.   In any event, without specific goals and long-term plans, emotions can quickly take over a portfolio and leave an investor feeling confused and worried during market storms rather than prepared and protected.

4) Team

Who an investor surrounds themselves with is crucial to their long-term success, both personally and financially.  Finding experts that you share similar beliefs and values with is half the battle of developing a good investment process.  Not so much because you are like-minded, but because they can serve as a consistent voice of reason.

Now I’m not talking about an advisor or expert who simply charges you to regurgitate things like, “We’re in it for the long haul,” or “Buy and hold is the only way to go.”  After all, why pay someone to keep doing the same things over and over again, and not getting the results you want.

Reality is, markets change rapidly and while drastic measures don’t need to be taken every week or month, recent developments in oil, China, the Euro Zone, and interest rates should at least be generating some new conversations.  Whether those conversations lead to actual changes or not, having an expert to discuss what’s going on can help remove some of the noise and stress that the current crisis is adding to their life.

Combined, the 4T’s of a global market slowdown can be useful for investors as they weight their options and consider alternatives.  Whether it’s time, temperament, targets, or team, each one can play a useful role in sorting things out and developing a plan of action during a market meltdown.


This article was written by Robert Laura from Forbes and was legally licensed through the NewsCred publisher network.

BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may be used as a generic term to reference the corporation as a whole and/or its various subsidiaries generally.  This material does not constitute a recommendation by BNY Mellon of any kind.  The information herein is not intended to provide tax, legal, investment, accounting, financial or other professional advice on any matter, and should not be used or relied upon as such.  The views expressed within this material are those of the contributors and not necessarily those of BNY Mellon.  BNY Mellon has not independently verified the information contained in this material and makes no representation as to the accuracy, completeness, timeliness, merchantability or fitness for a specific purpose of the information provided in this material.  BNY Mellon assumes no direct or consequential liability for any errors in or reliance upon this material.