How to Survive a Turbulent Market

Sometimes the market seems rock steady. Don't be fooled: Other times, it'll zig when you expect it to zag.

Where will the market head next? No one can say for sure. But history tells us that, at some point, the market is bound to head downward (even though its long-term trend is up). How will you react when it happens? Here are tips on how to survive when you hear a bear market start to growl.

Four don'ts
Uh oh...the market sunk when you thought it would soar (or at least stay stable). Does that mean the time has come to stop investing? Probably not—but here are four things not to do in a rocky market:

• Panic. Selling after the market tumbles is usually the worst thing to do. Try to stay calm. Remember, bear markets are a natural part of the investing cycle.
  
  Because the long-term trend of the stock market is up, investing for the long term is smart. Sticking it out minimizes the effects temporary bumps in the road have on your portfolio.
  
  
• Try to time the market. No one can tell exactly when a peak or ebb will occur. Even though financial experts can take educated guesses, the unexpected can always happen.
  
  To predict (or time) the market successfully, you have to guess right two times—at its highest point and its lowest point. Not easy to do. And because the long-term trend of the market is up, any time you pull out you risk missing a market rise.
  
  
• Fixate on the market's day-to-day movements. Watching the market rise and fall sometimes seems to be a national pastime. Life has more to offer than that. And obsessing about the market can be bad for your health—your financial health.
  
  Instead of continuously monitoring your investments, examine your portfolio's return every three or six months. Stay true to your investment goals and risk tolerance and don't reallocate your assets hastily.
  
  
• Let your portfolio become overly concentrated. You may be drawn to a "hot" stock, sector or mutual fund, but remember the value of having a diversified investment approach. Diversifying your assets won't eliminate your risk of losses, but can help to reduce the overall risk to your portfolio—and minimize the impact of a downturn in any one sector or investment.

Six do's
Instead of getting caught up in the high-anxiety world of day traders—where market movements get exaggerated—do yourself a favor and turn to these tried-and-true investment basics. Here are six things you should consider doing when you invest:

• Buy and hold. Take a long-term approach to investing. Not only is this a smart way to survive bumps in the market, but holding your investments for the long term may lower your capital gains tax and trading costs.
  
  
• Develop a taste for dollar cost averaging. Try investing the same fixed dollar amount at a regular interval, such as once a month. This is called dollar cost averaging, and it helps to manage risk when you invest.
  
  By investing the same amount every month, regardless of whether the market is up or down, you stay focused and disciplined. You also limit the risk of investing all your money when the market is at its peak. Note: Dollar cost averaging doesn't assure a profit or protect against loss. Investors should weigh their ability to sustain investments during periods of market downturns.
  
  
• Use asset allocation. Simply put, asset allocation means spreading your investments across the three major asset classes: stocks, bonds and cash or cash equivalents.
  
  Because asset allocation can be tricky—especially when you get down to picking individual investments—you might want the help of an investment professional. Investment professionals can help you identify your goals and find the investments that are right for you.
  
  
• Be patient. No rules can tell you just how long a bear market will last. The cyclical nature of financial markets means that periodic downturns are likely—but also that markets are very likely to head upward again. Patient investors are often rewarded when their investments once again start to climb.
  
  
• Review your portfolio. Even if you take the long-term approach to investing, that doesn't mean you should leave your money exactly where it is for eternity—especially as your goals, your family and the world around you change. That's why reviewing your portfolio—calmly and thoughtfully—as well as your goals once or twice a year is a good idea.
  
  
• Get another perspective. Even if you're a smart investor and do you research, you could benefit from the help of an investment professional. Our investment professionals can help you understand how changing conditions affect your portfolio, and will help you react wisely to market change—and avoid selling or buying in a panic.

Find an investment professional at a WaMu financial center near you for a free consultation.