‘Be very defensive.’ What financial advisors are telling their clients as the markets tumble

Financial advisor Ivory Johnson doesn’t sugarcoat what’s unfolding in the stock market and economy for his clients.

“It’s a very bad time,” said Johnson, a certified financial planner and founder of Delancey Wealth Management in Washington, D.C.

The S&P 500 Index fell into bear market territory on Monday as investors braced for an interest rate hike by the Federal Reserve, and stocks continued to fall on Tuesday.

Cryptocurrencies are also in serious trouble, with bitcoin plunging to an 18-month low of under $23,000.

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Amid all the scary signs, there are steps investors can take to protect their money, financial advisors say.

“Wealth never disappears; it just shifts,” Johnson said. “I’m telling my clients to be very defensive.”

That includes reducing their stock exposure “considerably,” he said, as well as shifting the equities they’re invested in to consumer staples and utilities. In a downturn, Johnson added, “people may not go on vacation, but they’re certainly going to pay their light bill.”

He’s also upping clients’ allocation to cash and gold, which has been traditionally viewed as a safe haven in market downturns.

“Gold does well in this environment,” Johnson said.

He likes to keep no more than 10% of people’s money in the asset, though.

Meanwhile, Allan Roth, a CFP and accountant at Wealth Logic in Colorado Springs, Colorado, suggests that investors looking to protect their money turn to short-term Treasury bonds and I bonds.

I bonds are backed by the federal government and their rates change every six months based on the consumer price index from the U.S. Bureau of Labor Statistics. Amid rising prices, they’ve done exceptionally well, although there are limits to how much of them you can buy.

“I bonds are the best thing since sliced bread,” Roth said.

What investors don’t want to do is pause their investment schedule, said Carolyn McClanahan, a CFP and founder and head of financial planning at Life Planning Partners in Jacksonville, Florida.

“The goal is always to buy low and sell high,” McClanahan said. “Well, now is low.”

Douglas Boneparth, CFP and president of Bone Fide Wealth in New York, said his clients aren’t too surprised by the recent volatility in the cryptocurrency market and headlines about an impending “crypto winter.”

That’s because he’s explained to them what it’s like to hold such an unpredictable asset, and he doesn’t recommend they invest more than 10% of their portfolio into the digital coins.

The reason there’s extra panic during this crypto slide is largely because the market has grown considerably, Boneparth added.

“There’s just a lot more to it today, with more players and capital,” he said. “For folks like me who’ve been around, that’s more reason for it not to disappear.”