“3 Things to Help Us in this Bear Market“
So far in 2022 just about every investment category is in the red. Growth stocks, value stocks, short-term bonds, long-term bonds, and even energy have now turned negative for the year. A balanced stock and bond portfolio (think 60% equities and 40% bonds) has had it’s worst year in over 80 years! As I write this the S&P 500 is down around 25% and I can understand why this can be causing anxiety for many investors especially if they are in or approaching retirement. While there are many different factors, the main culprit causing the collateral damage in markets is due to inflation and the Federal Reserve’s policy to increase interest rates dramatically to combat this inflation (which they told us was transitory for so much of 2021). So, with this being said, what can we do to bring our anxiety levels from maybe an 8 or 9 down to a 2 or 3 as we navigate these times?
There is Power in a Plan
If you are a current client, then you have this in some form or fashion. Your investments have been structured in such a way that based on the income you need, your net worth, and your long-term horizon we don’t have to panic in market downturns. The clarity of knowing that all of these variables have already been taken into account can allow us to make less mistakes when we are in a bear market. It doesn’t mean we are perfect and that fear doesn’t creep in every now and then, but it does mean that we can avoid the costly mistake of “panic selling” when the market is down and rest easy knowing that eventually “this too shall pass”.
Focus on Income and not Statement Value
If you are still working, this can certainly be an easier one, but even for many retirees this can be true. It’s tempting to look at a statement and feel disappointed that 2022 hasn’t produced the best investment returns, but it’s also good to remember that paper returns don’t always translate into the real income that you need to live on. For many retirees, their income in 2022 so far has remained constant, and if you are pulling social security you are projected to have a significant inflation adjustment UP as we go into 2023. Remember, that the income from your investments is only a small portion of an account that continues to remain invested and that will enjoy a ride back up when the market recovers.
Fixed Income can Once Again Play a Role Going Forward
For the past 5 to 7 years, bond returns have been disappointing in a low interest rate environment. For much of 2019, 2020, and 2021 you were lucky to find investment grade debt paying anything more than 1% to 2%. A silver lining as we see interest rates start to climb back up is that bond returns have started to look more attractive. Treasury notes yielding above 4% and investment grade bonds above 5% are a welcomed and an encouraging sign as we move forward. The diversified portfolio with a mixture of stocks and bonds will likely see a return to the forefront in this higher rate environment.
2022 has been tough, but it’s important to remember that the stock market ALWAYS eventually recovers and if you have a plan in place you should take a deep breath and remember that “this too shall pass.”