By Adrian Hovey, CFP
We’ve been fielding a lot of questions lately about the state of the economy and how to respond to it. While there are ten thousand answers I could give, I want to focus up on first-principles.
These are not tips or tricks. These are essential, well-established and most importantly well-challenged strategies that everyone should have in their playbook. When applied in the context of a financial plan they will give you the best chance to weather a storm with confidence and poise.
A smart financial plan doesn't just survive turbulence — it expects it. Take some time to reflect on these strategies. If you are still in the process of implementing them, keep building that foundation. If you’ve nailed them all take a victory lap and call me, we’re hiring:
1. Maintain an emergency fund. If you take nothing from this article, remember this. Those of you who know me well have heard my ‘Hallway of Doors’ bit. The punchline is that preserving clients’ choice and opportunity is the hallmark of a great financial planner. I want to give my clients as many doors to walk through as possible. If they need to access their retirement fund early because of an emergency – BAM! A door just slammed in their face.
If market downturns coincide with personal financial needs — like a job loss or unexpected expense — you may be forced to sell investments at a loss. An emergency fund (typically 3–6 months of living expenses in cash or near-cash assets) acts as a personal volatility buffer. It gives you breathing room so you can leave long-term investments untouched, even during rocky periods.
2. Get comfortable with market ups and downs. ‘Volatility’ as we call it is here to stay. Recognize that it’s a feature not a flaw. Markets respond to a constant flow of information — economic data, corporate earnings, geopolitical events, even investor sentiment.
Prices adjust based on new information (or news hype-cycles) and sometimes those adjustments are sharp. Historically, markets have always recovered over time. Expecting volatility makes it less frightening when it arrives. It’s not a sign that “this time is different” —it’s a sign that the market is healthy.
3. Keep your long-term and short-term goals straight. During a downturn, it's easy to lose sight of why you invested in the first place. Were you saving for retirement 20 years away? A remodel next year? Funding a child’s education? Time horizon is your friend in a down market. Short-term money should be exposed to very little risk anyway, so a bump in the road shouldn’t derail either strategy.
4. Have a dialogue with your CFP®. I almost titled this one “Stick to your strategy”, but the reality is that no plan survives first contact with the enemy. Make sure you and your planner talk through what to do when the market goes down. It could be nothing, and that’s fine. It’s all about expectations.
We should always challenge our strategy through critique that can be evaluated (as opposed to being ‘felt’). Emotional investing is dangerous investing. Fear is the mind-killer that can push you to sell low, while greed lures you into buying high. Tactics like systematic rebalancing or dollar-cost averaging remove emotion from the process. The math behind them is sound and when all else fails let science take a crack at it.
5. Redefine opportunity in your own words. Warren Buffett once said: “Be fearful when others are greedy and greedy when others are fearful.” I don’t have that on a t-shirt, nor is it as catchy as “buy low, sell high”. We’ve all heard it but it’s always a surprise how infrequently people take action on it. I’m vehemently opposed to timing the market. This is more about psychology than anything. Learn to identify good companies. When there is an opportunity to get them at a discount, recognize that as a good thing and not a reason for panic.
It's tough to watch the value of your accounts go down. When they do, remember that markets have always recovered from crises, wars, recessions, and even pandemics. If history is any guide, those who stay patient and committed are the ones who reap the rewards.
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