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The bear market reveals bad advice

Americans don’t want to hear about how the economy is poised for a recovery or inflation might peak or about long-term investment opportunities in the stock market.

They want to see something compelling.

Until they see this kind of evidence, the words are just platitudes.

I don’t blame savers and investors for being grumpy. Real disposable incomes — what people have left after adjusting for taxes and inflation — fell at an annual rate of 7.8% during the first quarter of 2022, according to a recent disclosure from the Bureau of Economic Analysis. Historically, it takes a recession to generate a decline of this magnitude.

What makes me grumpy these days is less the market and more the hokum and inanity that budding pundits are using to placate investors right now.

It’s a cacophony of pablum that contributes to the noise and nonsense of the market without generating the feel-good reaction the speaker is hoping for.

With that in mind, here are four of the least convincing things experts say to make investors feel better as they navigate tough times.

If those phrases didn’t perk you up – or instead just pissed you off more, like they did to me – you might just find out what you really should be listening to.

“Find an investment strategy that works for you and stick to it.”

If you did this a few years ago, that was good advice. Keep running with it.

Any prudent plan would have included some preparation for a bear market, a possible recession and more, even if no one could predict current events.

But if you get this message now, it could be a problem.

The “strategy that works” for many people in times of volatility is to keep lots of money aside. Collectively, American households have more than $18 trillion parked in bank accounts and money market funds, up more than $4 trillion since the pandemic began.

This cash is sheltered from market declines, but it loses ground to inflation. Rapidly.

And while short-term savings should remain liquid, long-term investors should stick to a long-term view, using the market downturn to buy stocks and funds that will help them grow their lives. active throughout their lives.

Investing strategies are all about preparation, and it’s hard to prepare for turbulence when you’re in the midst of it. In these moments, you know above all that you want to put an end to the problem, to put an end to the discomfort.

This is not the environment to stick to a plan that included a course to avoid downdrafts.

Yes, having a plan is the best way to persevere through tough times, but if you make that plan now – after the market has had one of its worst starts in six months to a year – throw comfort out the window. . You are doing something difficult, which requires making difficult and uncomfortable choices.

Now is not the time to panic.

Besides insinuating that there is a perfect time to panic and that hysteria can be a real investment strategy, this mantra does not allay anyone’s fears, because the implication is that it could be a good time to be scared and confused and all scary emotion that stops just before the real panic.

There are many strategies on the road from here to panicking. If someone just tells you not to go straight to the final destination, they’re not telling you anything you didn’t know all along.

The next time someone urges you to stay calm, check where you are on a zero to full panic scale. If you’re heading into the panic zone, think about what you can do to reduce your stress without hurting your long-term financial plans.

“The market will come back; It’s always like that.

This is not useful because it is a classically bad forecast; a deadline is missing.

Good forecasters don’t just tell you what will happen, they have an idea of ​​when it will happen.

Chatting with experts every day on my podcast, “Money Life with Chuck Jaffe,” I’ve apparently heard every possible prediction for how long the doldrums will last. If inflation stays high for three years and the Federal Reserve fails to manage things better, it could be a protracted bear market.

Many people are ready to buckle up for trouble, but they don’t necessarily anticipate a downturn that lasts for years.

Yes, I believe the market will come back, and investors who buy relative bargains on stocks that have been beaten will one day be amply rewarded. But investors will be better served by ensuring their short to medium-term needs are met and covered, ensuring they won’t have to dip into long-term investments under duress if the downturn continues. .

“Do what is necessary to overcome this.”

There’s a fine line between protecting yourself and ruining a long-standing strategy.

Whether you’re rebalancing a portfolio, adding alternative investments designed to be less tied to the stock market in times of crisis, simply diversifying into asset classes you don’t own, check to see if you’re sticking to a plan or if you jump from one to another. Next.

At times like these, investors disguise much of the short-term market timing as “improvements” or “additions” to a strategy.

It’s not that all moves made in these kinds of conditions will turn out badly, but make sure you understand why you didn’t make those moves during the most choppy times in the market, when you could have done no. any move you wanted – take any strategy or personal policy – without the stress of today.

If you’ve avoided a strategy in the past, it may not be “the right thing to do” now, simply because market conditions have changed.

If you’re diversified, making money on your investments through dividends and income, and have a plan, see if you pass a reality check without giving in to your emotions by making changes now.


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Post expires at 1:58am on Friday July 22nd, 2022