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Why And How You Need To Think Hard About The Next Bear Market Now

Why And How You Need To Think Hard About The Next Bear Market Now

Most investors worry about the next market downturn and try to figure out when it will occur. But they don’t develop specific action plans. That’s a major oversight.

You need to plan now for the next downturn.

Back in March when the markets and economy plunged, many people didn’t have plans. Of course, few were expecting a bear market. That downturn was caused by the Covid-19 pandemic, not by changes in monetary or fiscal policy. Some reacted to all the scary headlines about the markets and the pandemic by selling stocks. Others spent a lot of time reviewing as much information as they could and agonized over what to do.

Fortunately for those who didn’t do anything, the markets rebounded quickly after the Federal Reserve opened the money spigots and Congress provided fiscal stimulus. Unfortunately for those who sold in the panic, the markets rebounded quickly.

It’s important to make a plan now for the next downturn. In particular, make plans for what you will do and won’t do under different circumstances. Emotions of the moment will influence your actions less if you develop a plan now. You’ll be less influenced by the talking heads, market noise, and doomsayers. Plus, you have the time to consider all the angles relatively dispassionately. The fact is, most market downturns catch investors by surprise. You need to think hard about a market decline when one doesn’t seem likely. The closer you are to retirement, the more important it is to develop a plan now.

Some people will decide they’re able to ride out any fall in their portfolios. They’ll rebalance their portfolios as stocks decline but not take other actions. Others will decide to reduce their stock exposure but only if markets decline by a certain amount or key economic or market

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UK active managers fail to prove their mettle in a bear market

UK active managers fail to prove their mettle in a bear market

Nearly half of active funds in the UK failed to outperform their benchmark in the first six months of 2020, undermining longstanding claims that stock pickers shine in times of high market volatility.

Since January, 45 per cent of actively managed UK equity funds underperformed the S&P UK BMI benchmark, with 49 per cent falling short over the past 12 months, according to an S&P indices versus active funds (Spiva) report. Over 10 years, more than two-thirds of active funds failed to outperform the benchmark, the research said.

The pitch by active managers is that while they might underperform in bull markets, they prove their mettle in times of volatility.

Active funds promise more returns with less risk than an index tracker fund, said Ben Johnson, director of global exchange traded fund research at Morningstar. “The more that fails to pan out, the more we see investors vote with their precious investment capital and move into tracker funds, which is the trend we see panning out,” he added.

The Spiva report showed that half of euro-denominated global equity funds underperformed the global index in the past year.

Andrew Innes, European head of global research at S&P Dow Jones Indices, said that despite record levels of volatility, “the widely held belief that market volatility should create widespread opportunities for active managers remained unproven”.

Nineteen of 23 fund categories displayed negative returns on an asset-weighted basis since January, showing the widespread impact of the economic downturn across sectors, according to the S&P Global data. Performance of active funds varied widely, the research group said.

According to Calastone data released on Wednesday, active funds have not experienced net capital inflows over the past four years, despite remaining the largest category by value.

They have come under fire for their poor performance, which critics

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