This brief downturn illustrates the need to stress test your portfolio ahead of time. Hopefully this little hissy fit will soon be over, and it gives investors an opportunity to look at their losses. Look at what your loss would be if the market had dropped 40% instead of less than 8%.

This has been a program trading sell-off. Think about what just happened even while every economic data point is showing a very strong economic year in 2018. Earnings growth estimates are higher than we’ve seen since the post financial crisis recovery. Now, think what might have been if the economic news were not so good! When earnings growth starts to slow and there is a reason to sell, it could trigger an avalanche caused by program traders. 

What do I tell clients? I moved 20% of our Dividend Income portfolios out of a high-yield ETF and into DIVY about a month ago. DIVY was up on Friday and Monday. We’re hedged. Dividend stocks that we own will not be affected in terms of dividends and dividend growth prospects for 2018, regardless of stock prices. Expect higher dividends by the end of the year. 

Use this bit of volatility to plan now for how you will handle a real bear market. Once it begins it will be too late. 

— Bill DeShurko, Registered Investment Advisor at 401 Advisor, LLC

This article is part of a Kiplinger post titled, "20 Financial Pros' Advice for a Crazy Market