Preparing for market corrections

Today's financial markets have become increasingly volatile and complex.

Many people wonder when they'll be able to retire and how long their retirement assets will last. A sudden market downturn could have a significant impact to investors who aren't well diversified or don't have time to wait for a potential market recovery.

Market movements over time - like the current bull market - can cause investor portfolios to drift from their initial investment objectives and risk tolerances. While this disproportioned risk may have benefited passive investors recently, investment strategists increasingly predict the current market may be near its peak.

And despite the predicted market correction, a recent Wells Fargo/Gallup survey found only 40 percent of investors say they plan to rebalance their portfolio by the end of the year even though nearly 60 percent of investors feel that their financial situation would be hurt - moderately to significantly - if a major market correction were to occur.

To better prepare yourself for a market correction, consider the below.

Rebalance your portfolio

When the market has large gains or takes a big hit, you may be tempted to make significant changes in your portfolio, sometimes over-concentrating your investments in one area. Consider keeping a good mix of asset classes in your portfolio: stocks, bonds, and cash alternatives.

And once a year, look to rebalance your portfolio to help ensure your investments are aligned with your objectives and risk tolerance.

Sell assets strategically

Selling any asset can have tax implications, and the proceeds could nudge you into a higher tax bracket. Naturally, you want to help minimize taxes when you're selling assets to generate income in retirement, but balance that concern with your portfolio's allocation strategy. As you weigh the tax implications of a sale with your long-term goals, you may find that transferring assets makes more sense.

Consult a financial adviser

The 2017 Q3 Wells Fargo/Gallup Investor and Retirement Optimism Index found that only half of investors (49 percent) would likely turn to a professional financial adviser to help them through a market correction. Of the same group, approximately one third (35 percent) indicated they would rely solely on their own knowledge or research despite less than half (46 percent) of those surveyed being able to answer two basic knowledge questions about the markets correctly.

Remember, financial professionals have a variety of tools and resources at their disposal. Consider a blended approach to your investment decisions - utilizing your own knowledge and research as well as a professional.

• David Helverson is a first vice president, investments and Chartered Retirement Planning Counselor for Wells Fargo Advisors in Chicago. He can be reached at david.helverson@wfaadvisor.com.