From the course: Developing Investment Acumen
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What to do in a downturn?
From the course: Developing Investment Acumen
What to do in a downturn?
- A market downturn is horrible for everyone. When things go south, people can lose a large portion of their wealth very quickly, and this is when you learn whether you've taken on too much risk. Downturns are inevitable. They can and will happen, so prepare before the downturn comes. Make sure the risk that you've taken on is appropriate for you right now. Remember that bonds generally weather downturns better than stocks, so if you want to reduce your risk, bias your portfolio to bonds. If you're severely risk averse, you might consider converting to cash when the market's good, but keep in mind that you could miss out on continued growth. An enormous part of risk is leverage. Leverage is a fancy word for borrowing money, like a margin account, for example, and then investing it. That's good when money is cheap to borrow and returns are high, but when interest rates go up and market returns go down, investing borrowed money is a terrible idea. If you're leveraged, make sure you run…
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