Looks like we’re in it… you know, the dreaded “it”.
The S&P 500 has officially entered bear market territory. Gains in the index going back to the end of January 2021 have been taken off the table.
So, let’s take a moment and get some perspective. Though it feels terrible now, if we zoom out a little the market is still on a strong multi-year run:
For those of us who have been invested in the market for longer than the past two years, 2022 has been the spoiler we knew was coming.
For the estimated 20 million people who opened brokerage accounts in 2020 and 2021, this year simply doesn’t make sense. Stocks are down big and crypto has cratered.
And, if you entered retirement over the past two years, you’ve watched your income stream jump up and then dip in a big way.
The quick answer: It depends on several factors.
First, what’s your risk number? How much volatility should you be willing to accept and for how long?
Next, what is the purpose for your investments?
If you have a long time frame and own good investments, you probably shouldn’t change very much beyond a tactical rebalance. Those with taxable accounts may consider whether they need to take losses for a specific reason.
If you are retired, you may consider dialing back risk exposure in favor of total return or other income-focused investments. You might even increase cash reserves to cover the next 6-8 months or so of expenses. If possible, take distributions from other assets for a period of time to further slow portfolio drain.
Right now there are very few parts of the entire market that are generating positive returns. Those areas will become crowded trades and therefore subject to sharp price declines as the market eventually recovers.
There’s no V-shaped recovery coming around the corner. Selling out and sitting in cash is not a good strategy. We’re going to have to ride this one out.
Staying invested in bear market territory can be a challenge. Learn more about the Life Moves Wealth Management investment philosophy here.
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Author: Dale Shafer II, CFP®, APMA®, CDFA®
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