The Bears Tried To Stage A Take-Over…

After holding the line for multiple days, the S&P 500 fell into bear market territory yesterday…. only to bounce back in the final 20 minutes of trading, closing flat on the day. As a refresher, a bear market is when the index is 20% or more below its most recent high.

For reference, the Nasdaq 100 is currently in bear market, sitting at ~30% below the highs set earlier this year. The Dow30 is about 15% down. The Aggregate bond index is down almost 12%. Choppy waters all around.

We’re now nearly 6 months into what has become a prolonged correction. The chart below from CNBC shows the price movement of the S&P 500 over the past 12-ish months:

Source: CNBC, S&P 500 1-year trailing performance

We’re back to where we were in April of 2021.

A year later, the assets that shot the market higher are largely what’s dragging it down. Have you seen the stock price of… say, Peloton, Zoom, or cyrpto lately? How about Amazon, Apple, or Microsoft? Or, maybe Muni bonds, Treasury bonds, or high-yield corporate bonds?

Two words: Not. Pretty.

So, what do we do now?

I listened to a recap of notes from a recent investment conference and more than a few of the speakers discussed shifting portfolios to alternative investments. These “alt” strategies, at this time, are simply the replacement of risky assets with even more complex risky assets!

Traditionally people would be talking about rotating to cash. The temptation is to sell and get out before the market fully capitulates… which is when investors basically give up, sell, and wait for the market to bottom and then recover before going back in. This is selling low and waiting to buy high, and it’s the exact opposite of what works in the market long-term.

Easy to say if you have time on your side, right?

What wins with investing is beginning with a portfolio of quality investments, rebalancing where appropriate, and adding extra cash along the way. Know what you own, why you own it, and define your exit points in advance.

In practice, this will be harder for some people than others. If you’ve already retired, or are within a couple of years of retirement, you might approach this period differently than those with more than 10 years before retirement.

This is where a strategic approach to your investment mix, your concerns about the market, and your personal risk score matter most. If you’d like to learn more about this approach, click here to book a time to talk.

Everyone has a risk score. What’s yours?

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Author: Dale Shafer II, CFP®, APMA®, CDFA®