Worried About a Market Downturn? These 3 Yoga Principals Can Help

By: Manisha Thakor, CFP®, CFA

The late economist Hyman Minsky observed that cycles of risk-taking follow a consistent pattern. He found that stability and absence of crises encourage risk-taking, complacency, and lowered awareness to the possibility of problems ahead. Then a crisis occurs, resulting in people being shell-shocked and unprepared.

Indeed, we have seen this cycle play out in the way many investors behaved before and after the 2001 technology bust and 2008 global financial crisis. In tracking cash flows for fixed income and equity mutual funds over several decades, we observe that investors pile into risky assets following years of strong market performance and retrench into fixed income after suffering stinging losses—in effect, buying high and selling low.

As the current economic expansion enters its tenth year this June (now the second longest in modern history), and U.S. equity investors have enjoyed annualized investment returns of nearly 18 percent per year since March 2009 (the long-term average is 10 percent, dating back to 1926), it is timely that we call attention to George Santayana’s famous warning: those who cannot remember the past are condemned to repeat it. 

So there you have it. Like a game of musical chairs, the party is going to end with many losers. How can you increase your odds of being a “winner” in the next market downturn?

Surprisingly, the answer may be found in some ancient yoga principles.


Let me explain. I recently came back from a yoga retreat in Nicaragua where I was introduced to the concepts of Dharma, Sankalpa, and Vikalpa. To keep things simple, I will define Dharma as “the way that you do everything”—in other words, your overarching approach to life. Your Sankalpa are the specific steps you will take over the next 12-18 months to bring you into closer alignment with your Dharma. Your Vikalpas are the behaviors that keep you from acting on your Sankalpa and ultimately embodying your Dharma.

What struck me as I was thinking about how to apply these three concepts to my own life was the beautiful overlap they have with the ideal way to manage one’s own money. In fact, these three ancient principals can be used to help you navigate through the next market downturn.

Your financial Dharma is akin to the overarching investment philosophy you choose. (I recommend following an evidenced-based approach, but to each their own). Your Sankalpa is similar to your asset allocation—have you set aside a portion of your portfolio to immunize your standard of living long enough to weather a bear market? Your financial Vikalpas are the human tendencies that get in the way of sticking to your financial Dharma and Sankalpa.

Here’s an example. John and Jane are nearing retirement. They are believers in efficient market theory and have chosen an evidenced-based portfolio that incorporates funds such as those from Dimensional Fund Advisors and Vanguard. This choice of investment philosophy is their financial Dharma; it’s the way they “do money.”

John and Jane have a detailed conversation with their wealth advisor and identify what money they’ll need from their portfolio over the next 10 years to maintain their minimum desired standard of living. As a rough baseline, 15 percent is a solid benchmark for this allocation to ensure a base level of a safety net. Next, you add in any expected annual withdrawals, either for recurring or one-time expenses. Then you take the net present value of those 10 years of cash flow and discount them back.

Your financial Sankalpa is to set up your finances such that, no matter what happens in the market over the next 10 years, you will not have to sell securities outside of your capital preservation bucket in a down market. This figure is a rolling one, which is why you want to revisit your Sankalpa regularly—every 6 to 12 months is ideal.

The third and final step is to acknowledge your financial Vikalpas, those pesky behavioral traits that can trip you up along your way to Dharma. Examples include a tendency to panic and sell in market downturns, to follow hot tips you hear at cocktail parties, or to keep too much (or too little) in cash out of greed (or fear).

Whenever I hear someone tell me 2007-2009 market “ruined my retirement,” I know that one of two scenarios happened. Either they didn’t have a Sankalpa or asset allocation that included an appropriate capital preservation bucket and were forced to sell securities at fire-sale prices. Alternatively, they had the right asset allocation but did not have an overarching financial Dharma—their investment philosophy—on which to fall back. They sold in a panic, acting on their Vikalpas.

As you work to maintain a sense of financial well-being during the next market downturn, spend some time making sure you are comfortable with your investment philosophy (financial Dharma) and asset allocation (financial Sankalpa) to ensure that natural human emotions like fear, panic, and terror (financial Vikalpas) don’t drive your decision-making.

Blending these mental well-being principals of yoga into your overarching life can enhance your financial well-being.

This article was originally published by Brighton Jones, nationally-recognized wealth management firm based in Seattle. You can follow Manisha on Twitter @ManishaThakor.  

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MANISHA THAKOR  is the Director of Wealth Strategies for Women at Buckingham Strategic Wealth and The Bam Alliance. Manisha is the co-author of On My Own Two Feet and Get Financially Naked. Manisha has been featured on CNN, PBS,NPR, The Today Show, Rachel Ray, The New York Times, The Boston Globe, The LA Times, Real Simple, Glamour, Essence, and more. Manisha is also the founder of moneyzen.com.

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