Do not fear the bear; leave emotions out of investment plan

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Luke Gawronski

It has been 10 years since investors have had to experience the feelings that come with a bear market. The return of market volatility has both amateur and professional investors worried the next one is right around the corner.

These are valid feelings, especially with the pain of the recent market pullbacks. But do not allow emotions to take over your decision-making process. Try to remain calm and remember the following tips.

  • Identify how much risk your goals require. The most valuable benefit of working with a financial planner is that you are taking a proactive approach to your financial situation rather than reacting to the constantly changing market environment.

You should never take on more risk than is necessary to achieve your financial goals, whether that goal be buying a house or saving enough for retirement.

Quarterly, or at minimum yearly, reviews should be used to identify the needed risk level and create a plan for whatever scenarios the future might bring.

  • Keep focused on the long term. Remember that investing is a long-term commitment. Short-term goals call for short-term investment horizons, meaning staying in cash or very conservative alternatives that will not be significantly affected by a bear market or correction.

If you are going to commit money to the market long term, it must be understood that corrections and bear markets are to be expected. Keep this in mind when determining your risk tolerance level for long-term goals.

If the thought of a bear market makes it tough to fall asleep at night, it might be a sign you are too aggressively invested.

  • Check your diversification. If you sit down with a financial advisor, chances are good you will hear the word "diversification" and see a pie chart or two. During a bull market this can seem almost cliché, but during a bear market or correction, it could save you a lot of money.

To have true diversification, investors must understand the positive or negative correlation their investments have with the market and each other.

Investing in a variety of bonds, annuities, REITs and-or real estate could create some negative correlation to the market while supplying sources of income.

This could help hedge against market loss, while creating income to help weather a bear market.

Luke Gawronski, a financial planner with Barnum Financial Group, is a registered representative of and offers securities, investment advisory and financial planning services through MML Investors Services, LLC. Member SIPC. lgawronski@barnumfg.com

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