By Joe Smalley, Accredited Investment Fiduciary ®

Politics and the markets go hand in hand.  One of my political heroes is Abraham Lincoln.  My wife and I are listening to Team of Rivals, by historian Doris Kearns Goodwin.  Great book.  Lincoln was exactly the right person at the right time to keep our then fragile country together.  There are so many great quotes of his that I love.  (See the end of the newsletter for some of my favorites.)  Even today, maybe especially today, this one speaks to me: 


"I will prepare and my time will come."

Since the financial crisis, all eyes have been on Washington, D.C.  First, there was the rescue of the financial system.  Then interest rates were lowered.  Then Quantitative Easing.  As the economy has improved, intervention has abated.  Corporate earnings and fundamentals started playing their roles again.  We had an election not too long ago, and Wall Street was mesmerized.  Now the Fed is easing and the global economy is turning around.  But we are not out of the woods yet.  Political tensions in North Korea, the Middle East, Russia, China, and now even on our very own streets, are causing fear and anxiety. 

Since the bottom of the financial crisis, the stock market has essentially gone straight up.  The Dow Jones Industrial Average fell to 6,500 in March of 2009.  It is now trading near it’s high – somewhere over 21,000 as of this moment.

The stock market is due for a correction.  And any little thing could cause that.  A fearful dictator on the Korean peninsula, a power-hungry Russian, a protest march in the US, a government shut-down, or a 3AM presidential tweet. 

Here’s the thing: we all know it is coming.  It may have just started.  Markets go up and down; that is what they do.  The question is not if it is coming, but when.  But even that is not the right question to ask.  The better one is: what should we do about it?

3 things to do before the next correction

In my opinion, there are three things everyone needs to do to prepare for the coming downturn:

1)  Determine your monthly expenses

a.    Add up your bills and what you spend your money on each month.

2)  Categorize every account and holding into one of three categories:

a.    Short term (Stuff you can get to if you need it within the next 24 months.  This is to pay your expenses [see item #1] and any big-ticket items you need to buy within the next 2 years.) 

b.    Medium term (For things that you’ll need money for within the next 10 years.  This one is tricky, because we can all pretty much figure out what we’ll need soon, and what we can anticipate for, say, retirement, but 6 years away is harder.)

c.     Long term (This is your 10 year+ bucket.)

3)  Shift money to the right spot

a.    Need more to cover short-term expenses? How’s your emergency fund? Do you have a stock wish list?  All of these might require moving some money around.  Just remember to factor in the tax implications of selling.  Rebalancing is a good thing to do, and now might be a good time to do it.  Remember, no one ever went broke taking a profit.

And here are 2 things to do when the next correction comes:

1)  Don’t panic

a.    As tempting as it might be, when the stock market corrects, don’t sell your quality long-term investments.  If they were purchased for a time horizon that is longer than 10 years, don’t alter your plans based on a downturn in the stock market.

2)  Buy low

a.    When the market corrects, if you have some powder dry, for your long-term investments, that is often the time to buy.

Finally, here is the 1 thing to do at any point – before, during, or after the next correction:

1)    Have a plan

a.    Creating a financial plan that can help you see what you have, where you have it, what you might need, and how much to save is always a good idea.  You can run various “what-if” scenarios and it can help you prepare for the ups and downs of the market.

These are all pretty general in nature.  To discuss the specifics of how best to prepare for your situation, please give us a call. 

As President Lincoln said:

Photo by stevanovicigor/iStock / Getty Images
Photo by stevanovicigor/iStock / Getty Images

Now is the time for some axe sharpening.

Here are some more of my favorite quotes from President Lincoln:


“My dream is of a place and a time where America will once again be seen as the last best hope of earth.” 

“Do I not destroy my enemies when I make them my friends?”

“You cannot escape the responsibility of tomorrow by evading it today.”

“We should be too big to take offense and too noble to give it.”

Joe Smalley is an Investment Advisor Representative located at 213 East Saint Joseph Street, Lansing, Michigan, 48933.  He can be reached at 

Securities & advisory services offered through Commonwealth Financial Network ®, Member FINRA/SIPC, a Registered Investment Adviser. 

Investments are subject to risk, including the loss of principal. Because investment return and principal value fluctuate, shares may be worth more or less than their original value. Some investments are not suitable for all investors, and there is no guarantee that any investing goal will be met. Past performance is no guarantee of future results. Talk to your financial advisor before making any investing decisions.

All indices are unmanaged and investors cannot actually invest directly into an index. Unlike investments, indices do not incur management fees, charges, or expenses. Past performance does not guarantee future results.

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