5 Millionaire Behaviors For When The Stock Market Is Retreating


1)      Stay Committed, Stay Goals Focused

First and foremost, resist the urge to run. It is natural and normal to think, “I could just sell everything and reinvest when the markets start to trend up again.” Please don’t do this. Millionaires are strategic. They have an emergency fund, balanced portfolio, and cash flow that allows them to stay invested even during volatile markets.

These strategies are best implemented during good times. If you find yourself overextended, it may be helpful to get professional advice on how to get back on course.

2)      Remember the BIG picture, take SMALL actions

Millionaires invest with 5–10-year time frames. They focus on the long-term potential of investments. Big ideas and big picture concepts dominate their investing strategy. Things like the economy, technology innovation/adoption, consumer spending habits, and business fundamentals.  However, the actions they take during bear markets tend to be small and measured. They rebalance and trim positions when appropriate, but they avoid the urge to change their strategy based on today’s sentiments and market prices.

3)      Be systematic, not dramatic

The actions millionaires take during bear markets are often automated. They rebalance at set intervals and add to their investments in a predetermined manner (think: dollar cost averaging).

One way to emulate this behavior: Create a monthly plan to maximize your retirement account contributions for this year. Add every month and buy quality investments whether the market is going up or down.

Contrary to popular stories about going “all in”, most established investors avoid the dramatic actions that make for a sensationalized story. Rather, they create systems and behaviors that build success over time.

4)      Know what you own

Millionaire investors focus on buying quality investments. When there is a downturn, understanding what they own is a shield against breaking rule #1 (and running for the hills).

Even great companies and investments can fall out of favor. Industry standard companies like Amazon, Microsoft, Apple, Walmart, IBM, and Boeing have had periods where their stocks are <50% below all time highs.

If you find yourself obsessively checking the balance of your investment portfolio each day, I suggest you spend at least a few minutes of that time researching the investments you hold. Not just the price of the investment, but the companies, bonds, or commodities that make up the holding.

As you learn about your investments, rank them. If you feel you should take some small steps (see point #2) concentrate your investment around high conviction holdings. These should be investments you feel good about and are well-positioned for the future.   

5)      Keep draw downs in perspective

During a market correction, it’s easy to forget that this volatility is quite normal. Millionaires often have the advantage of having lived (and invested) through multiple corrections. They have felt the drops, but also the recoveries. Here are some data points to consider:

·       The S&P 500 Index averages a peak to trough fall of 14% across all years.

·       During midterm election years, the average stock market correction is 17%, but stocks rebounded 32% on average in the 12 months following those midterm year lows.

·       Of the last 21 times the S&P 500 has been down double-digits since 1980, stocks rallied back to end the year positive 12 times.

·       During those 12 positive years, the average gain has been a stellar 17%.

These are just historical numbers, not a prediction of the future. There are no guarantees stocks will rally. But Millionaires tend to be optimists* and invest with a belief in long-term growth. 

Important Information

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

All data is provided as of April 28, 2022.

Link to https://www.businessinsider.com/studying-millionaires-showed-me-the-importance-of-optimism-2016-2 is an outside article and is not affiliated with the author or related businesses.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities.

All index data from FactSet.

This articles contain research material prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

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