THE BLOG
10/23/2014 08:45 am ET Updated Dec 23, 2014

What's Your Plan if the Market Falls?

It's on every investors mind. Shall we dare speak it?

What will I do if the market falls?

If you've been investing for any length of time then you've experienced a market correction much like the one we are in now. But I'm not talking about a mere 10 percent correction.

I'm talking about a drop like we saw in 2008 and 2009. (Gulp!)

What will you do if the market falls? Do you have a plan?

Here are a few choices Investors have if the market falls:

Stay put.
This is easier said than done. I had conversation after conversation with my clients during 2008-2009 Credit Crisis. Investors were terrified and begged for guidance. They just didn't know what to do. They were on the edge of selling out so many times. Many of them did the right thing in spite of their irrational fears...they stuck with their investments. The only thing that gets in the way is your own fear.

Sell.
This could be a good option if you need the money right away. Selling could also be good if the fundamentals have deteriorated since you bought the investment(s). However, it's usually it's a panic move and really doesn't do anything but make you feel better. In fact, it may harm your portfolio. Because then you have to pick the right time to get back in. How will you know when that time comes? I don't have a crystal ball either. Avoid panic selling.

Buy more.
I'm kidding, right? Nope. This is usually a good thing. You are getting your investments "on sale." If they are still great investments, why not get them at cheaper prices and lower your overall cost basis? The problem here again is it requires some fortitude to buy when everyone else is in a panic and selling. Buy when there's blood in the streets.

A combination.
If the market falls you could sell some losers for tax losses for the year. Plus, you could use the proceeds to pick up a few investments that are on sale. You'll come out ahead by doing both. It could be a great time to reposition a portfolio. Repositioning to correct your asset allocation or to even try out a type of investment for the first time. It's a perfect time to shuffle the deck.

The Bottom Line
If the market does fall like 2008-2009, then you must have a plan. Don't wait and don't wing it. Talk with your advisor regularly about your specific game plan. The main thing is stick to it when the crap hits the fan.

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