You need to review your risk before a market downturn.
If you haven’t assessed your risk, including best and worst case scenario losses then do so NOW! Many investors don’t review their risk or entrust their advisor to do so. If neither you nor your advisor has reviewed your risk and potential losses in the best and worst case scenarios then you could find yourself in a Bill Murray Groundhog Day movie-like experience hearing your broker say “just hang on” as the markets plummet. It could be deja vu and feel like the year 2008, early 2009, or 2000-2002 (for those who are older).
The stock market is approximately 50% overvalued.
The value is getting better by the day as losses mount. That doesn’t mean that stocks will fall 50% in the current downturn, however, a reversion to the mean (average value) will always happen. Based on the current overvaluation, significant losses at some point are baked in the cake. We welcome the losses; especially since the market telegraphed the fact that it was sick last year. These early warning signs can help prevent steep losses. At some point we will see signs of a turnaround and the market values at that time will provide guidance on how much to buy. We may also see the market rebound with strong momentum. Based on your investment methodology this could also be a buying opportunity. In an overvalued market you can still make money in a strong up market.
If you bought your stocks and bonds at great values years ago, they are still good investments for the future. If you are receiving healthy interest and dividend yields, and you have reviewed your risk and the amount of losses you can tolerate (that will not impact your financial plan), then sit tight and hang on. There is no reason to sell investments that you bought at good values. The advice would be the same if the market was not so overvalued. You could hold what you own and buy more. Unfortunately the current market is not providing many opportunities.