Top Things to Remember in a “Down” Market
It’s as been an incredibly challenging year with both stocks and bonds getting beat up pretty good. Bonds typically have an inverse relationship with stocks, one goes up…the other goes down. This year - not at all, both down. In light of this, I wanted to share a few bear market reminders in hopes of resetting the mental mindset and encouraging the right investment behavior. Below I’ve compiled thoughts that I’ve said to myself, to you, and to others many times, but they are such crucial reminders for us all in times like this.
Be sure to look at your stock to bond mix. While bonds are down, they’re not down near as much. If you’re planning on using any of your money in the near term, we would be using your bond money, not your stock money - giving the stock dollars time to recover. You have to use a little mental accounting with your statement and separate short- and long-term dollars. If you see it all as your “now” money, it’s going to be much more scary and not show you the complete picture.
If you’re nearing or in retirement, remember the effort we’ve put in over the last couple years building your 5 Year Income Plan. This, in our opinion, is the most important work we can do to ensure your financial plans aren’t disrupted by bear markets. Most of the issues we face today should all be past us over the next 5 years and your balances will most likely be recovered if not higher than they were.
You still have all your shares. While the value of these shares are down, you still have them (you actually have more of them due to our rebalances) and staying the course and allowing the value of these shares to recover is the only way to come out of this unscathed. If you sell these shares to ease the short-term pain, I can’t say the same.
The bigger risk now is missing the recovery rather than continued losses. Many of your financial plans would be severely hurt if you do not take part in the recovery. We have to be forward looking and riding through additional losses, while not fun, won’t be as detrimental to your long-term plan than missing the ride up and not having the dollars you need to achieve your goals.
But a recession is coming!?!? Sure, and if everyone knows the same thing then you’re not getting ahead of anyone. Or, if you wait until the National Bureau of Economic Research tells us the recession is over, you’ll miss the recovery because the market is always 9-12 months forward looking. The market has already priced in a recession, in my and many of our research partners opinions. The market will not wait for NBER to tell us it’s over - it’s going to shift its focus to long-term gains at some point and it’ll start moving higher long before the news and data tell you it’s over and the coast is clear to get back in.
Who’s on your team?
CNBC? Bloomberg? Fox Business? News outlets make their money selling ads, they get more money for those ads when there are more people watching, and more people watch when the market is going down. They want to pump as much fear into you as they possibly can to get you watch and make money. They are not on your team.
Online stock brokerages offering free trades? Citadel? Payment for order flow is how these companies make money. The more you trade, the more buying and selling you do, the more money you make. They want you to believe you have to be doing something with your portfolio every day, this is how they make more money. They are not on your team.
There are SO MANY “unknowns” right now. Election, Ukraine, interest rates, inflation, etc, etc, etc. It always feels like “this time is different” but it never is. The market always makes its recovery and it typically always happens faster than most believe it will. Typically every 5 years or so there is “a big one” and when that happens you lose several years’ worth of gains. For example, the Covid crash wiped out 4 years’ worth of gains and the 2007-2008 crash wiped out over 12 years worth of gains (looking at the S&P 500). Both of which to this point are levels the market hasn’t gone back to. What has historically taken place is a crash and a recovery with the “crash bottom” never being touched again. So you do end up capturing and holding all those gains if you can hold on long enough to see the other side. While every bear market is unique in why it started, the "this time is different" crowd makes you believe it will be...right up until it isn't.
The black line is the S&P 500 accompanied by all the reasons why someone would not want to stay the course. I’m encouraging you to not only stay the course but call me and tell me how much additional money you would like to invest today, to take advantage of this temporary decline in asset prices.
As always, reach out with any questions you have!
Shean
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
Stock investing includes risks, including fluctuating prices and loss of principal.