Surviving a Financial Downturn

Stock markets are humming along now, but that doesn’t necessarily mean things will remain calm.

There is always a chance of an unexpected downturn. The worldwide economic impact of the Covid epidemic just a few years ago showed us that. That’s when financial planners turn into counselors, with reassuring words to calm emotional clients.

The key to preparing for rocky markets is not necessarily just picking the right stocks and bonds but having a plan. Because a shock will happen eventually.

MAKE A PLAN NOW

“Keep calm and take a breath,” says Myles J. McHale Jr., president and founder of Wealthcare Advisors and senior vice president and adjunct professor at Cannon Financial Institute.   Right now, the market worries are over tariffs, geopolitical conflicts and political battles in Washington, he says. “Ten years ago, it was Brexit and declining oil prices. Twenty years’  oil prices dropped dramatically in the midst of the credit and mortgage crisis leading to the Great Recession of 2007 and 2008. Thirty years ago it was the dot.com bubble. And we all thought that this time, it was different. Good Times would never end.

“People who panic, who don’t have a plan, they are the ones who react.,” he says. “And having a plan allows you to control what you can control. We can’t control the markets but having a plan and understanding what that plan brings to the table, a couple things. It allows you to revisit your asset allocation and risk tolerance level, to make sure that it’s correct with your age and your overall objectives.”

DO THE WORK UPFRONT

Alex Dann, senior vice president at Novare Capital Management in Charlotte, North Carolina, says he focuses on the correct allocation of stocks and bonds, “especially when you are working with folks that are either approaching retirement or in retirement. They are starting to get to a point where they are living off their assets rather than simply plugging money into a 401(k) or IRA.”

“It’s really critical that the clients I work with have an allocation that they can stick with, a mix of stocks and bonds and other assets that they can stick with whether the market’s good, bad or sideways,” he says. “And so, the key is to do all the work up front, prior to any sort of market correction or economic downturn, so that clients are really comfortable that they’ve prepared for this.”

When people see the market down 20% or 25% and they aren’t prepared for a loss, they can sometimes make poor decisions, Dann says. That’s why the early conversations about risk tolerance are so important.

TAKE THE LONG VIEW

Then you draft a written investment policy statement, (outlining investment goals, asset allocation, and strategies), that is based on your prior history, your need for the funds and your tolerance for risk. What results is a mix of investments, a mix of stocks and bonds, that that you can stick with for the long term.”

And important note is that when you put together a plan for a 65-year-old client, you aren’t planning for five years out, but because people are living longer, you are planning for their funds to last 30 years when they are in their 90s, Dann says.

“And so that, (we) are going to build into the plan all of the different economic downturns that have happened historically, over the last, in some cases, 100 years so,” he says. “And from there the plan can say, you can spend X dollars a month, you can live your current lifestyle, and you’re going to be in good shape, even if we get those 30-plus percent correction at times.”

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Rodney A. Brooks is an award-winning journalist and author. The former Deputy Managing Editor/Money at USA TODAY, his retirement columns appear in U.S. News & World Report and Senior Planet.com. He has also written for National Geographic, The Washington Post and USA TODAY and has testified before the U.S. Senate Special Committee on Aging. His book, “The Rise & Fall of the Freedman’s Bank, And Its Lasting Socio-economic Impact on Black America” was released in 2024. He is also author of the book “Fixing the Racial Wealth Gap.” His website is www.rodneyabrooks.com

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