Having a Plan B

The past several years has seen the Philippine Stock Exchange reach historic highs. Fueled by both local and foreign money, the PSE index went from 4,000 to over 7,400. Nowadays though, with the FED clearly signaling an end to the Quantitative Easing program, more and more people are getting the sense that the shoe is now on the other foot.

So, IF Philippine equities do go down, what’s your plan? And no, I’m not just talking about going “long-term”. I mean what is your plan for investing as a whole? Hindi lang naman kasi stock market ang dapat pinag-lalagyan natin ng pera. The very real danger now is that if you were expecting stock market gains to fund certain other investments then what do you do if the stock market drops and stays down for YEARS? Seriously, ask yourself: “Are you prepared for a bear market?” Hindi correction, BEAR. Remember, as bad as 2013 was, it was still a positive year for the index. That’s a very far cry from 2008 when the index dropped massively.

What to do? Consider the following:

Review Market Strategy / Exposure

Why did you enter the market in the first place? Was it to chase capital gains? If so, and if you are making money now, when do you lock your gains? If you are losing money, how much pain can you take and for how long? If a bear market does take place, it MAY take years to get to the bottom and years to get back to these levels. Are you truly prepared for that. Believe me, saying you are willing to wait for years is a LOT easier than actually seeing your portfolio bleed consistently for months, if not years.

Additionally, examine just how much of your assets are in the market right now. Are you absolutely certain you can wait out any drops? One of the worst things that can happen is being forced to sell at a loss because an expense that you expected your stock investments to pay for has come due and your stock positions are still losing.

Bottom line:

Review your reasons for being in the market.

The investing environment HAS changed considerably so your old assumptions and expectations may no longer be valid.

Have a Plan B.

If you find that the market is no longer as attractive or promising as you initially expected, then it behooves you to develop a Plan B as soon as possible. The stock market is definitely NOT the only instrument out there. Fixed income instruments can offer a haven to those seeking recurring income and a way to escape market volatility. Dollar denominated products are another potential option as a stronger U.S. dollar can help offset some peso-denominated losses.

Alternatively, others are already positioning to buy real properties in case there is an outright meltdown. They posit that a drop in equities will also be felt in the real industry so they are preparing cash to buy distressed units with the intent of either flipping them or renting them out when things calm down.

What about you then? What’s your plan? If you don’t know what you’re going to do, don’t you think you need to figure that out? ASAP?

#aralmunabagoinvest