Legal   |   ADV   |   Privacy   |   CRS

How Millionaires Invest During a Market Downturn


Major stock market indices have staged an impressive comeback since plunging into bear market territory in March when the severity of the coronavirus pandemic became apparent. However, the Dow Jones Industrial Average and the S&P 500 remain in the red for the year and the uncertainty of the pandemic would seem to indicate that more volatility lies ahead this year and perhaps beyond.

So how should you approach investing during a time like this? One strategy is to adopt a “millionaire mindset” with your investments. For example, Warren Buffett has been able to achieve double-digit market returns annually for half-a-century in all market conditions by adopting this kind of thinking.

Maintain Consistency and Stability

Such a mindset requires developing strategies that help you maintain consistency and stability in your investing practices. Consider these five strategies as you adopt a millionaire investor’s mindset:

  1. Commit to staying the course. Weathering steep market drops and extreme volatility can be like riding a giant rollercoaster. The drops, in particular, can be stomach-churning. At times like this, it can be tempting to just sell equity investments and sit on the sidelines until things calm down.

However, this is generally counterintuitive to a millionaire mindset because it can lead to buying high and selling low — which is the opposite of a successful long-term investing strategy. Consider the current situation, for example. The Dow fell 23% during the first quarter of this year and the S&P 500 fell 20%. But both indices bounced back big in the second quarter, with the Dow gaining 18% and the S&P 500 gaining 20%. Investors who sold stocks when the market plunged in March missed the big rally that followed.

  1. Keep your eye on the prize. A key to the millionaire investing mindset is staying focused on your long-term objectives, even in the midst of short-term market drops and volatility. For example, if you’re in your 30s or 40s and investing for retirement, you have a long-term investing time horizon of several decades and can generally afford to ride out short-term market corrections.

Similarly, a millionaire mindset manages risk by taking a slow and steady approach to investing and building wealth over time, instead of trying to hit investing home runs. One way to do this is to adopt the strategy of dollar-cost averaging. Here, you invest the same amount of money at regular intervals (like monthly) regardless of whether markets are up or down. This removes the guesswork of trying to time the markets while evening out share prices over time.

  1. Make investing automatic. Sometimes referred to as “paying yourself first,” this strategy goes hand-in-hand with dollar-cost averaging and is often used when saving for retirement. Automating your investing means you don’t have to think about it — funds are automatically transferred into your investment accounts at regular intervals, such as each pay period.

This strategy may work best if you participate in a workplace retirement plan like a 401(k). Your retirement plan contribution will automatically be deposited into your 401(k) account every payday. If you don’t have a 401(k) plan at work, you can accomplish the same objective by opening an IRA and having money automatically transferred from your checking account into the IRA each month.

  1. Rebalance your portfolio periodically. While automating investing means you don’t have to remember to invest each month, this doesn’t mean investing should be “out of sight, out of mind.” Over time, market movements can change the balance of asset classes in your portfolio. This can knock your overall asset allocation — or the percentage of stocks, bonds and cash — out of whack.

The solution is to rebalance your portfolio on a periodic basis to bring your asset allocation back in line with your long-term objectives. For example, if the recent stock market fall has underweighted the equity portion of your portfolio, you might want to sell some bonds or cash and use the proceeds to buy more stocks and bring your portfolio back into balance.

  1. Look for opportunity in the storm. It’s natural that bear markets trigger some level of fear among investors — but they can also present tremendous opportunity for investors who are looking for it. Market downturns may actually represent opportunities to buy securities at depressed prices if you have a long-term perspective.

The key is to set aside emotions and look at a down market from an opportunistic viewpoint. A lower stock market means that it costs less to buy stocks, or that stocks are “on sale,” so to speak. Historically, some of the biggest stock market gains have come soon after big drops, like what has happened recently. Of course, there are no guarantees, but if you have a long-term time horizon, a downturn could represent a unique opportunity to “buy low.”

Have the Right Mindset

As difficult as the recent market downturn may have been, you can make the most out of the situation by adopting a millionaire investor’s mindset. Don’t hesitate to contact us if you have more questions about investing strategies in the current environment.

The commentary is limited to the dissemination of general information pertaining to Frontier Wealth Management, LLC’s (“Frontier”) investment advisory services. This information should not be used or construed as an offer to sell, a solicitation of an offer to buy or a recommendation for any security, market sector or investment strategy. There is no guarantee that the information supplied is accurate or complete. Frontier is not responsible for any errors or omissions, and provides no warranties with regards to the results obtained from the use of the information. Nothing in this document is intended to provide any legal, accounting or tax advice and Frontier does not provide such advice. This information is subject to change without notice and should not be construed as a recommendation or investment advice. You should consult an attorney, accountant or tax professional regarding your specific legal or tax situation.