Video: Bear Market – What To Do With Your Portfolio
Tuesday, June 14th, 2022

Stephen: Hello, everyone and welcome to another episode of the Smart Money Show. I’m your host, Stephen Rischall, along with my partner, Matt Stadelman.

You know, we’re almost halfway through the year. Inflation is still increasing much faster than anyone wants it to be. The Fed is going to keep raising interest rates. And now it’s official, the S&P 500 is now in a bear market.

So how should you be thinking about this market and what can you do to weather the storm?

When we take a step back from where things are today, we realize that most of us are still doing pretty well overall in our financial lives. But generally, we can tell things feel different with how the economy, markets, the world just looks today.

Unlike the most recent bear market we experienced two and half years ago, during COVID lockdowns, that was really fast market dropped over a period of 6 weeks. This time, we’ve been dealing this market drawdown for the better part of the last 6 months. Investors have had a lot more time to stew on this, and it just really doesn’t feel good. So, Matt, I want to ask you, what do you make of all this and what’s going on right now?

Matt: Well, like you said Stephen, this feels different because we’ve had a lot more time to think about this one.

With COVID lockdowns, the panic selling came fast, I mean, some people weren’t thinking at all. Today, we’re hearing about good financial numbers, bad financial numbers. Some people are asking if a recession coming. I think there are two things at work right now.

First is, there are fundamental issues with the economy. Things like supply chain issues, rising inflation and rising interest rates. But the other big thing is uncertainty, which is connected to these fundamental issues in the economy. And this uncertainty results in fear.

Now, there are those of us, obviously, that remember the financial crisis and real estate crash in 2007, 2008. Before that, we had the dot-com bubble. And some of us even remember crazy inflation and market gyrations in the 70s and 80s.

So today, many of us are seeing our portfolios dropping since the start of the year, down 10% to 20% since January. These are big numbers and investors are worried.

Stephen: Yeah, that’s a fair point, Matt. I know that my portfolio is down quite a bit since January too. And I’m also guilty of this thing that we call anchoring bias.

The markets were at all-time highs back in early January, so we create this benchmark, it’s arbitrary, from when markets and our portfolios were at their highest points ever. And then what happens is we compare everything to this skewed view. It can really make things seem a lot different, a lot worse, a lot better, maybe, than they really are.

Matt: Exactly, we have this high point in mind, and when our portfolio is lower than that amount, we say to ourselves, “Well, hey, I’ve lost money.” But that’s not entirely true.

The value of our investments are continually subject to risk and they’ll go up and down while they’re still invested. It’s only when we sell that we lose or gain any money. So, as an investor with a long-term strategy, I wanted to compare current market values to the past.

Today, middle of June 2022, the S&P 500 is back to the same level it was in January 2021.

Now, when we look at the S&P 500 over the last 3 years, on the whole for those 3 years we’re up more than 36%.

And if we take it an even further, look back at 5 years, we’re up more than 68%.

So, I mean, I think that’s good perspective.

Stephen: Yeah, and I guess really what that means is we’re nowhere near the losses that we experienced almost 2 years ago. During COVID lockdowns, the market lost over 30% in value well before it recovered. And obviously recovered very nicely. And like we said earlier, the S&P 500 is down more than 20% from it’s recent high point in January.

That’s what is technically called the bear market. You’ve probably heard on financial news media, they keep using that word, bear market. And I think a lot of people are now wondering, what should they be doing, what should you be doing with your portfolio when you’re in a bear market?

Matt: Well, I mean, there are several things we have already been doing for our clients. And I think the first one that comes to mind is rebalancing. For many people, it probably makes sense to look at rebalancing. The goal of rebalancing as we know is to keep your portfolio aligned with the amount of risk and reward that’s part of our financial plan.

Stephen: Yeah, and another thing that we do for clients quite a bit during times like these is tax loss harvesting. With tax loss harvesting, we purposely sell investments for a loss. And what you can do is, you can use that loss later this year and carryover to future years to offset capital gains. It’s a really smart tax move with portfolio.

Matt: Yeah, I got another one. Might not be for all investors, but now it’s a really good time. I mean, if follow the adage of buy low and sell high, those with a surplus of cash on the sidelines, might be a good time for them to invest. I know, myself, I will be investing more by the end of this month.

Stephen: Yeah, me too, I’ll be doing that as well. For folks that have surplus money, that makes sense. Another thing to think about if you happen to have employer stock options, or some kind of stock incentive plan, or compensation plan, you just might wanna look at that.

It’s possible that the price per share for your company may have been a lot lower today than it was 6 months ago. So you might wanna think about exercise while the stock price is lower and you might end up paying a lot less in taxes as a result of that.

Matt: Yeah. I guess the last thing I’ll bring up is, don’t abandon your investment plan based on short-term market gyrations. It’s really tempting. But there are still signs of strength in this economy. And, I for one am positive about the future for us all, in spite of the worrisome news.

Another thing to consider, related to inflation. As consumers, we all are the demand side of the equation. And if you don’t need to purchase a new home, a new car, if you can use less fuel, it will all make a difference in the rate of inflation because these are the three biggest culprits as it were in the really high inflation that we see right now.

Stephen: Right, and last but certainly not least, now is a good time to talk with us about your financial plan. What if the cost of living is higher than we expected for longer than we expected? As always, we’re keeping an eye on your portfolio. And we’ve been making adjustments, doing many of the things Matt & I just talked about already in your portfolio.

If you have questions, if you’d like to meet with us to update your financial plan, please contact your advisor, call our office today. Thanks for watching. Until next time, I’m Stephen Rischall, that’s my partner, Matt Stadelman, and this is the Smart Money Show.