While the recipe for the current bear market has some familiar ingredients like rising interest rates and slowing economic growth there are some unusual additions like sputtering global supply chain, a labor shortage, and a war in Ukraine. Sprinkle in ill-timed government action and we have a market that that we haven’t seen since 1980, for the bond market, and 1932, for the equity markets.
Throughout my 23 years of helping clients manage their financial and retirement goals, I've helped hundreds of families weather significant investment market ups and downs. First was the Tech Bubble, then the financial crisis of 2008, followed by the Covid-shutdown and numerous other market drops along the way. Understandably, market volatility makes people nervous and often leaves them wondering if the recovery will be too slow or unbearable. These reactions are common, especially after last week's news that the S&P 500 performance matched the number of down weeks not seen since 1932. The big question is how long will this market continue to languish and what should investors do.
With the number of crosscurrents impacting the economy and no serious action being taken to remedy the situation, this recovery could take a while. What investors need to consider is dependent on their life stage. For retired clients, it is prudent to have enough cash to cover a year of expenses to avoid being forced to sell investments in a down market. On the other hand, if you are in the accumulation phase, this could be an opportunity to add solid investments that are "on sale." In other cases, it might be appropriate to add or increase assets that could hold up in inflationary environments – commodity funds, mining companies, and floating-rate bond funds. For others, we have been building up cash holdings to seize investing opportunities when values seem attractive.
Warren Buffet, arguably the most successful investor of our time, has this axiom, "Be greedy when others are fearful and fearful when others are greedy." At his company's annual shareholder meeting earlier this month Warren shared a slide showing his company, Berkshire Hathaway, had invested $40 billion so far in this bear market. (Taking his own advice!)
Successful investors understand that markets are volatile, but markets do recover. Having a plan to weather the volatility is key to calming nerves and avoiding investment pitfalls. If you have any questions about the market or your portfolio, please contact our office to schedule a meeting.
Indices are unmanaged and investors cannot invest directly in an index. Unless otherwise noted, performance of indices does not account for any fees, commissions or other expenses that would be incurred. Returns do not include reinvested dividends. The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is a market value weighted index with each stock's weight in the index proportionate to its market value.