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3 Ways to Prepare for a Rough April

By Dan Caplinger - Apr 1, 2013 at 9:28AM

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Investors have been waiting for the quarter to end to lock in profits. Will the market fall now?

Many stock market experts are convinced that April will be the month when 2013's bull-market run comes to a screeching halt. After largely ignoring rising turmoil in Europe and continued economic concerns in China and other emerging markets, the double-digit percentage gains for U.S. stocks have pushed popular benchmarks to new records.

Whenever prevailing views on the stock market become uncertain, it's important to keep your long-term perspective. By keeping the following three things in mind, you'll be ready for whatever April throws at you.

1. 2013 doesn't have to follow in 2012's footsteps.
One big argument that experts have used to bolster their case is that last year, stocks also had a great first quarter, but then gave up all their gains by early June. By that logic, waiting for the inevitable downturn makes a lot more sense than investing at pricier levels, despite the hype generated by new market records.

Yet on countless occasions, trying to time the market has led only to frustration. With earnings looking much healthier than they did the last time the markets were this high, there's no guarantee of any correction coming anytime soon. Counting on a repeat of 2012 could just leave you asking tougher questions later this year and beyond.

2. Some stocks will gain even if the market does sink.
If you invest solely in index funds, then what happens to the broad market is in fact all that matters to you. But one of the advantages of investing in individual stocks is that you can avoid downturns -- or at least reduce their impact -- if you pick winning companies.

As an example, go back to last spring. Even as the broader market lost 10% in just a couple of months, online travel portal Expedia (EXPE -1.56%) and its review and research spinoff TripAdvisor (TRIP -1.56%) both posted big gains as their strategy of dividing and conquering paid off with big earnings growth. Expedia cited a recovering travel industry for increases in hotel bookings, and TripAdvisor managed to boost its advertising revenue. Those advances paved the way for much larger returns throughout the rest of the year.

Similarly, the fears that come with market downturns can lift certain stocks. Wal-Mart (WMT 0.11%) jumped 8% during last spring's stock market swoon, paralleling its experience in 2008, when it managed to post a modest gain even in the bear-market year's 37% drop for the S&P 500. Not all defensive stocks work this well, but every stock has its unique exposure to economic conditions and therefore will act differently in any market.

3. Know your plan.
A solid investing plan involves knowing what you'll do in any market environment. With stocks at highs, making sure you've rebalanced your portfolio recently is the key way to ensure your portfolio risk is at levels you're comfortable with. If you have the right mix of investments, it won't matter what happens in April -- you'll still be on track to reach your longer-term goals.

Don't panic!
The only certainty for April is that it's likely to be just as unpredictable as every other month has been recently. By keeping your wits about you, you'll be best prepared to handle whatever comes your way in the markets.

Tune in every Monday and Wednesday for Dan's columns on retirement, investing, and personal finance. You can follow him on Twitter @DanCaplinger.

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Stocks Mentioned

Wal-Mart Stores, Inc. Stock Quote
Wal-Mart Stores, Inc.
WMT
$119.20 (0.11%) $0.13
Expedia, Inc. Stock Quote
Expedia, Inc.
EXPE
$124.59 (-1.56%) $-1.98
TripAdvisor, Inc. Stock Quote
TripAdvisor, Inc.
TRIP
$24.65 (-1.56%) $0.39

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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