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When the market gets rough and recession fears spike, investors may believe losses are inevitable. While this can be true, especially in the recent market downturn, there are steps you and your broker or advisor can take to properly allocate your investment portfolio to best position your finances to survive the downturn. While losses are likely, they can be mitigated by a smart investment strategy that properly considers the risks. If your account is not suitably invested, but has too much embedded risk, it is likely that the losses you suffer during a downturn will exceed your risk tolerance. Changing the portfolio risk and allocation is a must, but it may be too little, too late.

If you’re experiencing outsized losses, your advisor may have failed to recommend suitable investments to prepare you for this downturn. Assess your portfolio for some common investment missteps. A good advisor would have discussed with you your risk tolerance, the potential for a downturn, and the right asset allocation to meet your needs and investment objectives. If your portfolio allocation doesn’t reflect the fruits of that discussion, you may need the help of an investment fraud attorney. In short, how much are you willing to lose, both in terms of percent decline and in real dollars? Know before you invest.

Depending on the investor’s personal suitability and risk tolerance profile, an asset allocation that considers and adjusts for downturn risk may include higher diversity to shield from an individual company’s risk of bankruptcy. Within this diversification, a recession-ready portfolio may feature more value, rather than growth, stocks. A diversified portfolio may also include some international investments to shield against domestic risk from Federal Reserve actions.

As I sit here on a Sunday afternoon, listening to some tunes and wondering what will be the ripple effect of these strange times, particularly for the retail investor who has enjoyed an 11 year run of a bull market, I for some reason thought of The Clash’s “Should I Stay, Or Should I Go Now?”.  It’s worth a listen…

Who would’a thought that the title and lyrics from the English punk rock band “The Clash” from 1981 might aptly describe the retail investor’s conundrum given the Coronavirus meltdown in the equity markets?  As a retail investor with a sizeable amount of your life’s savings in the market, “should you stay or should you go…?”

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