“Fall Back” – but don’t drop the ball! The S&P is down more than 22% since the beginning of the year, landing it definitively in bear market territory. Historically, bear markets in the U.S. occur, on average, every 4.5 to 5 years, and while they are terrifying, they don’t last forever. In fact, the market decline may have a silver lining and provide an opportunity in a potential entry point for investors. History is on your side.
Historically, investors have often come out of hiding in October. The S&P 500 has started to head up again during that month in 12 post-war bear markets. Research shows the average length of a bear market since 1929 is just 9.6 months, less if there is no recession. No historical stock market trend is perfect, but add to that the fact that although mid-term elections tend to be a drag on stocks, they are now over.
Never make big changes to your investment strategy based on the hope of short term gains, even though the expectation may be rooted in history. It tends to be more damaging than helpful in the long run. The market tends to perform well after a period of prolonged losses, and although the 4th Quarter may bring a pleasant surprise, we are still not sure we have hit bottom. That being said, a period when stock prices are low may be a good time to buy, if you believe the market will continue to rise in the decades to come.
If you have money sitting on the sidelines, invest in a diversified portfolio, and do so regularly. This is known as “dollar cost averaging,” and is considered a best practice for long-term investors regardless of what the market is doing. Over the long run, your cost will “average down,” leaving you with a better overall entry price for your shares.
There continues to be a cornucopia of solutions to meet a variety of portfolio diversification needs: equities, fixed income, alternative investments, index funds, etc. Whether you decide to take a practical and defensive posture, accumulating more shares in a regimented way as prices decline, or go on the offensive and take a short position in the market profiting as prices decline, stay calm and don’t make any sudden moves. If it is difficult for you to keep your fears in check, put a portion of your portfolio in money market securities, such as certificates of deposit (CDs), U.S. Treasury bills, and other instruments with high liquidity and short maturities.
With a diversified portfolio and a long term plan you can sleep at night, so stay the course. Remember, investors who sell when markets are down, fumble their long term investment strategy. Don’t drop the ball; when the financial news starts to sound better, the market has already recovered, and you will find it difficult to jump back in the game and hit your financial goals.
CONTACT US: Get educated about the potential impact of a prolonged bear market on your portfolio and income. No matter what your age, our TFG financial advisory team will work with you to help you build a tax–efficient, well-diversified portfolio, allocated and tailored to your risk profile. Feel free to contact me, Cory Lyon, Financial Advisor, directly at 561-209-1120, with any questions regarding financial planning. TFG Financial Advisors offers a complimentary, no obligation, 360 degree portfolio audit to help you assess where you stand and what opportunities may exist. At TFG, we believe in customized investment portfolio design and personalized asset management. I act as a fiduciary for my clients.
TFG Financial Advisors, LLC is a registered investment advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities, and past performance is not indicative of future results. Investments involve risk and are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed here.
