I’m not an investment banker, financial advisor or stock market expert, but I am a stock market investor. I invest in index funds. I started investing in November 2010, which you may recall was around the start of the most recent bull market (when the stock market goes up in value). Like many investors, recent news of a shaky stock market is making me nervous. Several indices dropped in value in the last 7 days and I own funds which track these indices. Being an investor who’s only invested in a bull market, I’m getting ready for the next phase: investing in a bear market.

It’s important to remember that the next stock market crash is unlikely to look exactly like ones before it. We all know that past performance is not an indicator of future performance, so it’s important to acknowledge that I will never be fully prepared. I’ve always been a planner and whilst no plan is fool-proof, I feel empowered knowing what my steps are if the stock market does crash.

Acknowledging the pain of ‘losses’

I’ve only invested during the steady rise of the stock market, which means I’ve only seen gains year on year of about 9% which have exceeded my gains elsewhere in my portfolio (peer-to-peer lending - 5%, regular savings accounts - 2%, renewable energy bonds - 7%). I’ve gotten used to my portfolio making returns not losses. The first thing to remind myself of is that I should expect to see volatility and see my portfolio drop in value, but that doesn’t mean I’ve lost money so I don’t need to panic. Losses and gains are only realized when I sell my assets.

Buying and holding

Warren Buffett and John Bogle are my investment gurus. Their investing careers have spanned decades and they have invested through several crises. One nugget of wisdom from Buffett is the importance of holding assets for a long time. He once said, “Our favorite holding period is forever.” As I’ve already mentioned, my losses will only be realized if I panic sell when the markets drop in value. I already have an automated monthly investment plan set up with my broker which helps me stick to my buy and hold strategy. As prices go down and I keep investing, I’ll be able to buy more of the same assets at a lower cost, which could help me realize even more profit in the future when I do eventually sell or withdraw income from my nest egg.

Redundancy plan

Following the financial crisis in 2008, millions were left without a job. In the US, the unemployment rate peaked at 10.2 per cent in October 2009. It’s important to keep developing your career no matter what the job market is doing, but during a recession competition is fierce, so I’m investing more in my development. I’m building skills within and outside of my field thanks to Lynda.com, networking at industry events, volunteering regularly and nurturing my side hustles. Working in financial services in London, Brexit already poses a job security risk, so it’s important to keep my skills strong if another recession hits.

Emergency fund review

If I am made redundant, I need to make sure that my emergency fund can cover my basic expenses for 6 - 12 months in a high-cost of living city (London). The market will be competitive, but I have faith that London will still provide job opportunities during a recession (as it did when I was an inexperienced graduate in 2010!). I don’t want to be forced to move to an area with a lower cost of living because I worry that there will be fewer job opportunities. Holding money in an emergency fund is a key milestone of personal finance and something that every single person should aim to have as soon as possible.

Monitoring my spending

I’m fortunate to be an enthusiastic frugalist. Frugality has become a game and every day provides a new opportunity to win. Travelling is a priority and can quickly become costly, but the threat of an economic downtown is making me think about how far I need to go to travel. I’ve started getting to know the area near my office. Since I’m in the heart of the city, there are plenty of free museums, parks, squares and churches with immense history that can help me feel like I’m travelling. It’s also encouraged me to stimulate my senses during my lunchbreak and avoid the perils of eating ‘al desko’.

If, like me, you’ve felt nervous in recent days, it can really help to plan how you’d respond if your portfolio halved in value overnight. Are you going to sell when the market drops suddenly or are you going to ride it out by sticking to your long-term investing plan? I’m not advocating buying and holding, but I am advocating having a plan especially given many of us can be irrational when it comes to money. Having a plan will help you avoid making a permanent decision based on temporary emotions.

>> Disclaimer: please note that you should do your own research and analysis before making any investment. The articles and information made available on Vestpod are provided for information and educational purposes only and do not constitute financial advice. You are advised to consult with an independent financial advisor for advice on your specific circumstances. <<

BY MAUREEN MCGUINNESS

Maureen writes on personal finance for millennials. In 2017, she released her first book: Your Money, Your 20s. Your Money, Your 20s is available only in digital formats for $2.99. Since releasing her book, she has written several online courses on money management and investing. She is a big fan of index funds and started investing in the stock market aged 22. Since then she has invested in peer-to-peer lending, renewable energy, and crowdcube businesses. You can read more of her work at The Life-Life Balance.