Bear Markets Are Time For Action

Investors are paralyzed. They need to do three things right now.

Yes, it’s time to stop acting like a deer in the headlights. While one shouldn’t be checking their account everyday during a bear market, they still need to review their portfolio to take steps to position it for the future.

“It’s not the time for inaction,” Warren MacKenzie, President of Second Opinion Investor Services Inc., states emphatically. Here are three things to do:

1. Harvest tax losses in taxable accounts to claim against past/future capital gains for tax purposes
2. Rebalance portfolio since your asset allocation has likely moved considerably off target (buy low and sell high principle)
3. “Look across the valley and remember … have the courage to invest,” as Mr. MacKenzie notes.

Bear markets are also times when investors begin to think about switching advisors. Does your advisor seem to be hiding from you and is your portfolio down a lot more than expected? That could show your advisor has put you into the wrong investments for your risk tolerances or that they did not explain the risks to you well.

“There is a natural tendency for advisors to “let the winners ride” instead of rebalancing during a bull market,” says Mr. MacKenzie. “And with such a long and strong bull market coming to an end, it’s possible you went into the bear market with an asset allocation that was not the right one for you.”

Comments

[MarvinMBA:]

There's nothing for the prudent investor to do except stay on the sidelines and watch the bulls and bears trample and eat each other. You all should be in a cash position right now standing on the sidelines IMHO. If not get there as soon as possible as we have not seen this cycle bottom out yet IMHO. MarvinMBA

2008 Oct 17 01:40 AM

[Steven Hansen:]

this is not a market for the investor. there is still too much leverage to unwind, and a recession which still is to be addressed.

2008 Oct 17 06:05 AM

[Smarty_Pants:]

Mr. Market is providing one more chance to hop on board the gold bull at discount prices. An option worth considering in this economic climate.

2008 Oct 17 10:04 AM

[Serge Birbrair:]

"Inaction is also the "Course of Action""

2008 Oct 19 10:10 AM