6 Tips on How You Can Cope With a Market Decline

Many people believe we are in the midst of a bear market that conjures up fear of the Great Depression. Markets go up and they go down. You can't control the market but you can control your reaction to market declines. Here are 6 tips on how to cope with a market decline:

1. Make sure that your portfolio was designed for your investment goals -not for how it reacts in up and down markets because that is an unknown.

2. How much time you have to meet your goals will help you consider what to put in your portfolio. The longer the time horizon; the more risk you can take.

3. Your risk tolerance should be assessed. If you panic when you lose 10% of your investments, then a portfolio of more risk adverse vehicles would be more appropriate. Keep in mind though that you may need to invest for a longer time if you take less risk.

4. If your financial circumstances haven't changed, then stick with your long term plan no matter what the economy is doing. Studies show that long term investing always gives a better return than darting in and out of the markets. Taxes and fees magnify your losses every time you trade.

5. Don't look for short term fixes like selling everything and waiting till things get better. Things may get worse before it gets better but you will be guessing as to when it is the right time to get back in. You could miss out on the recovery.

6. For long term investors, it's a great time to be buying. You can start by dollar cost averaging which is buying shares consistently over time so that your average purchase price is lower.

Three years after the bear market of the 1970s, a $10,000 investment in the S&P 500 Index would have grown to $45,098. In five years after the bear market of the same period, a $10,000 investment in the S&P 500 Index would have been worth $85,605.

Don't let emotions let you stray from the facts. Your investment goals, time horizon and risk tolerance should drive your investment decisions, not the daily news or financial television networks. Cope with a market decline by having an investment plan that you are comfortable with and stick with it. Your financial future depends on it.