Mitch's Mailbox

June 23rd, 2022

Bear Market + High Inflation. What Should Investors Do?

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Dwight and Sara S. from Overland Park, KS asks: Hi Mitch, we feel like a couple of deer in headlights with the sudden onset of the bear market and inflation looking like it could seriously hamper our spending power in retirement. We feel like we should do something about it but we don’t know what. Any thoughts?

Mitch’s Response:

 Your question echoes what millions of retired Americans are also thinking about, and I know it must feel like these two negative forces – a market downturn and inflation – have collided at just the wrong time for you.

You are understandably concerned, but I also think it’s ok to take a step back and remain calm and optimistic. One thing we know about inflation and market downturns from history is that neither are permanent and in my view, I see both improving significantly by the end of the year. When things feel as bad as they do now and emotions are running high, it almost always means an inflection point is near. Hang tight.

How Can You Protect Your Investments in this Bear Market?

Navigating through a bear market is not easy for investors. Instead of making sudden moves based on fear, you can potentially avoid the most harmful hazards of a bear market by using some of the useful tools we offer in our free guide – The Zacks Bear Market Survival Kit.2

In this guide, you’ll get our viewpoint on the most important moves you can make to weather a bear market. This guide discusses some key tools to prepare for a bear market, including:

Don’t wait—if you have $500,000 or more to invest, get this guide today!

Download The Zacks Bear Market Survival Kit.2

As far as what you should “do about it,” I’ll offer three pieces of advice that I think make sense for most investors:

Review Your Asset Allocation and Risk Tolerance – Times of market volatility are good opportunities to review your goals and your portfolio’s asset allocation. Are your investment portfolio and your finances set up in such a way that they account for your 1-year, 5-year, and 10+ year growth and cash flow needs? Did you realize with the current market downturn that you are not comfortable with this big of a market downdraft?

These are all questions that you can ask now to check that your finances and investments all reflect your needs and objectives. If everything checks out, then it almost always makes sense to do nothing and to trust your plan.

Remember That Stocks Look Forward, Not Backward – We think stocks’ current downturn is more sentiment-driven than fundamentally-driven, but if the downturn is indeed reflecting a coming period of economic weakness, it is important to remember that stocks have likely already priced most of it in. Another way of saying that is if you are concerned about economic weakness ahead, it is probably already too late to sell stocks in anticipation of it. Selling when stocks have already entered a bear could mean locking in those losses and failing to participate in the rebound.       

Reassess Your Budget – I’m a fan of reviewing the household budget at least once a year. But in times of weak markets and in this case, an inflationary environment, I think it’s a great idea to review your budget to see if there are any adjustments you can make to save money. In my view, household spending should be like a dial you can turn up and down – reducing spending when things are a bit haywire in the markets, and bringing the spending back when times are good. 

Another thing I know about bear markets based on my long career in investment management is that investors always look for ways to protect their portfolio from pain when the selling pressure takes hold. But this instinct to run for cover or make changes quickly is almost always emotionally driven, which sets it up for making consequential mistakes. It’s better to review your plan, make sure it’s a solid plan that addresses all of your goals and needs, and stick to it.

It’s important to remember that volatility is a natural (if unpleasant) part of the economic cycle. Instead of letting fear of a bear market manage your investment decisions, you can avoid the most harmful hazards of it by making use of some useful tools in our free guide, “The Zacks Bear Market Survival Kit.3 These tools include:

If you have $500,000 or more to invest, get our free guide today. You’ll get our viewpoint on the most important moves you can make to weather a bear market. Don’t wait—get this guide today!

Disclosure

1 Wall Street Journal. June 16, 2022. https://www.wsj.com/articles/three-money-mistakes-to-avoid-in-a-bear-market-11655325704

2 ZIM may amend or rescind the “The Zacks Bear Market Survival Kit.” guide for any reason and at ZIM’s discretion.

3 ZIM may amend or rescind the “The Zacks Bear Market Survival Kit.” guide for any reason and at ZIM’s discretion.


DISCLOSURE

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.

Zacks Investment Management, Inc. is a wholly-owned subsidiary of Zacks Investment Research. Zacks Investment Management is an independent Registered Investment Advisory firm and acts as an investment manager for individuals and institutions. Zacks Investment Research is a provider of earnings data and other financial data to institutions and to individuals.

This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel. Publication and distribution of this article is not intended to create, and the information contained herein does not constitute, an attorney-client relationship. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole.

Any projections, targets, or estimates in this report are forward looking statements and are based on the firm’s research, analysis, and assumptions. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. All expressions of opinions are subject to change without notice. Clients should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed in this presentation.

Certain economic and market information contained herein has been obtained from published sources prepared by other parties. Zacks Investment Management does not assume any responsibility for the accuracy or completeness of such information. Further, no third party has assumed responsibility for independently verifying the information contained herein and accordingly no such persons make any representations with respect to the accuracy, completeness or reasonableness of the information provided herein. Unless otherwise indicated, market analysis and conclusions are based upon opinions or assumptions that Zacks Investment Management considers to be reasonable. Any investment inherently involves a high degree of risk, beyond any specific risks discussed herein.

The S&P 500 Index is a well-known, unmanaged index of the prices of 500 large-company common stocks, mainly blue-chip stocks, selected by Standard & Poor’s. The S&P 500 Index assumes reinvestment of dividends but does not reflect advisory fees. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor. An investor cannot invest directly in an index.

Questions posed are for demonstrative and informational purposes only and may not reflect the views of current clients or any one individual.
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