The Day – Recession may be on its way, so how should local investors go about it?
Maintain. And if you have a bit of ice in your veins, you might even consider investing a bit more in the stock market despite worries about inflation and recession.
That’s the advice to retirees and those about to retire from local financial experts as the stock market bear market roars, with composite averages down around 20% and CBS News reporting that retirees have already saw a $3 trillion decline in their assets.
“It’s not just the stock market that people are worried about; it’s beyond that,” Robert Henderson, director of Lansdowne Wealth Management LLC, told Mystic in a phone interview.
Henderson cited rising inflation and rising mortgage rates as concerns. And he said there doesn’t seem to be a safe place to park your money, since bonds and stocks are down.
“We could be in the middle of a recession right now, and we just don’t know it,” he said.
One thing that could calm fears would be the Federal Reserve’s decision to ease interest rate hikes that have so far slowed in an attempt to quell inflation rates above 8% during of the last two months. “You’ll see the market start to return to a bit of normalcy” once the interest rate hikes stop, he said.
Josh Lyons, director of Lyons Asset Management at Mystic, said those who aren’t afraid of risk should actually consider gradually getting back into the market, focusing on strong companies with good dividends.
“Invest in value stocks and ride out that volatility,” he said. “It’s a position we haven’t seen in 10 to 12 years” when the financial meltdown and Great Recession sent stocks tumbling 50%.
Lyons attributed much of the current volatility to the COVID-19 pandemic and resulting supply disruptions, as well as Russia’s war on Ukraine, which has caused prices to spike. world oil. On the bright side, he pointed out that most corporate earnings remain strong, consumer demand is still high, wages have risen and employment numbers continue to improve.
“If you pick good, solid companies that are doing things right…and are undervalued now, they come back faster and stronger,” Lyons predicted.
All local financial advisers contacted recommended that retirees have at least some of their money set aside to guard against further declines, but also to ensure that you are not forced to sell investments in a bear market. . Recommendations on how much money to set aside ranged from enough money to fund six months to three years of your current lifestyle, keeping the funds in low-risk investments such as money market funds .
“Knowing you have cash when you need it can help alleviate stress and worry when the market is volatile,” said Nancy D. Butler, a business coach from Waterford with over 40 years of experience in financial services. “When the market goes down, there’s no way of knowing when it’s going to rebound.”
The longest bear market in the modern era, in the 1970s, lasted 630 days, while the shortest, during COVID-19, took the market down 34% in just 33 days. However, the Great Depression led to a series of 12 bear markets that lasted a total of 13 years.
Both Lyons and Henderson said their clients have so far stayed the course, thanks in part to early communication as the stock market downturn became more pronounced.
“You manage expectations, you don’t have as many problems,” Lyons said. “You have to be careful what you hear and listen to. … It’s a good time to be smart.”
A 70-year-old local businessman who has just retired for the third time understands managing expectations. He didn’t want his name revealed so he could speak candidly, but said his first retirement in the year 2000 after 25 years in the corporate world was quickly put on hold after the September 11 attacks crushed the stock market, making his stock options nearly worthless and driving down his 401(k) value by about 40%.
“It took about three or four years for the market to recover from this event,” he said in an email. “Still, I thought we were okay with retirement funds, so I spent many years coaching the boys in football, basketball and baseball and doing part-time volunteering and counseling. .”
Then the Great Recession of 2007-09 hit, cutting the value of his retirement funds almost in half. So he was back to work running a retail establishment at Niantic that he also owned. It took six years, he said, before his investments returned to 2006 levels.
Then in 2011, he joined a private equity firm, where he remained until 2017, when he took his second retirement. He had hoped to sell the retail store he owned and a local sports facility he had invested in a few years later to fully retire, but COVID-19 hit, once again ruining his plans.
“I needed a better crystal ball to predict 9/11, the Great Recession and COVID-19,” he said. “But everything went well. You just have to constantly adjust the plan.”
Over the past few weeks, he has managed to sell both his Niantic business and the sports facility. He said making both sales this time around made retirement completely comfortable, both mentally and financially. The pandemic had affected both businesses, and by selling he also felt he had succeeded in reducing the risk of repeated waves of coronavirus continuing to disrupt businesses.
“I never wanted to go through that effort and stress again,” he said.
Rebalance your portfolio
Butler said people who haven’t yet retired but are thinking about it should assess what kind of income they’ll need after their regular paychecks stop.
“While you’re working, not only do you earn money, but you also have less time to spend money,” she said. “When you stop working, what do you plan to do with the 40 or more hours you will have each week? Many retirees remain active today, which may mean their need for income in retirement is not much different from the one they had when they were at work.”
Butler stressed the importance of diversification and keeping tabs on risk tolerance and when you retire. For those with cash in reserve, she recommended gradually relaxing the market by buying small amounts of stocks over several months and at regular intervals because it is difficult to predict when the market will make a comeback; Additionally, rebalancing your portfolio can ensure that your allocations are not too heavily weighted in one area of the market.
“For example, if you initially decided that your portfolio should hold 20% large-cap stocks and the market has done very well, causing large-caps to now make up 35% of your portfolio, you would sell 15% of your large-cap holding (sell large-cap stocks) and use the proceeds to buy more investments that are falling in value (buy low),” Butler said. “Rebalancing your portfolio quarterly or semi-annually is generally recommended.”
Some of the financial experts pointed out that strong, dividend-paying stocks can provide protection against a bear market. The stock price may drop initially, but the dividend — a percentage of the stock’s value that varies from company to company — could be a good quarterly payout for those on fixed incomes. And, of course, the stock price should eventually recover.
“Don’t let market volatility, high inflation, or other factors cause you to make a financial decision you later regret,” Butler said. “Have a plan and stick to it. A well-thought-out plan can help you weather any financial storm that comes your way.”