DOs and DON'Ts in a Bear Market for the High-Net-Worth Investor
Global markets have taken us for a wild ride in 2022. Inflation is not yet under control, the Fed continues to raise interest rates to combat it, and geopolitical tensions continue to weigh heavy on supply and demand across various sectors. Bonds are at an all-time high and securities are still in flux, hitting record highs and lows all within the same month, let alone the same quarter.
But that’s just this time.
A Bear Market is a Bear Market is a Bear Market
If you’re new here, welcome. But if you’re not, you know we’ve said what we’re about to say a million times: volatility and bear markets are nothing new. Sure, the macro and micro events that “cause” a bear market may vary, but at the end of the day, a bear market is a bear market is a bear market. They are unfortunate, but they are a reality.
The last time we saw a bear market was for a brief moment in March of 2020—also known as the shortest bear market in history, lasting only one month before equities turned back around and skyrocketed for a remarkable V-shaped recovery. But before this “blip” in time, we hadn’t seen a lasting bear market in eleven years!
That’s a long bull run and one that can cause a bit of investing amnesia, as it were. So, we think it’s high time we revisit the DOs and DON’Ts of a bear market (and the case for staying invested through it all):
DON’T let news headlines or any specific wild single days in markets derail your long-term plan.
We all know that it is important to avoid market timing and stay invested during painful bear market cycles, but it can be harder to do so when you’re “in the moment”—flashing red numbers are scrolling across the screen and media pundits are warning that danger lies ahead.
But, what they aren’t telling you (while they’re trying to increase their ratings) is this:
-Bear markets are short lived, with the average bear market lasting only 9.6 months.
-Bear markets aren’t unusual. Going back to 1928, we have seen only one more bull than bear market—26 bear and 27 bull. In 100 years’ time, we have seen just as many bears and bulls and investors are still profiting.
DO take productive action.
Remember, great wealth is made during bear market cycles – we just do not see it right away. You don’t want to sit tight, that is never a winning strategy. Take action throughout the period to capture the potential a down market presents while you can. This includes tax-loss harvesting, rebalancing to attractive securities trading at value, and putting excess cash reserves to work by adding to your investments.
Added bonus: Halpern Financial clients never pay trading fees, so we are able to take action as often as we’d like without any costs.
DON’T run for cover.
You could miss the market’s best days if you sell amid high volatility. Research shows that big market drops tend to precede large gains. If fears prompt you to sell, you could miss the upside.
DO be an active participant.
Bear markets can present an opportunity to capture higher returns with less risk on both the equities and bond sides.
Equities: Companies with large cash reserves, healthy balance sheets with little to no debts, and consistent cash flows do very well during tough economic times. Bear markets give you the opportunity to buy these equities at 20-30% discounts! A great time for sure.
Bonds: You may also want to take advantage of bonds in this market, focusing on instruments that can float with rate changes, securing shorter durations with higher credit quality and focusing on Muni holdings (tons of stimulus helped municipalities be flush with cash).
Sensing a Theme Here?
We've said it before, but it bears repeating – during these painful market cycles, you must avoid market timing and stay actively invested! And at Halpern Financial, we don't just sit tight; we take action for our clients. Throughout the period, we look to optimize our clients' portfolios at every turn while allowing the current cycle to be our guide.
If you are not yet a part of the Halpern Financial family and would like to learn more about how we capture potential upside for our clients in all economic cycles, schedule a call with one of our trusted and experienced advisors today. We’d be happy to walk through your opportunities with you and see if Halpern Financial is the right fit for you and your family.
Ted Halpern
President and Founder