At the time of this writing (June 17, 2022), the stock market is down 22.4% and the bond market is down 11.3%.
Given the continued volatility and declines in the market, we wanted to answer 3 questions. Our hope is that these answers give you some perspective.
1. Are we in a bear market?
Unfortunately, we entered a bear market in June. A bear market is defined by a drop in stock prices of 20%.
OUR TAKE: It is easy to be scared by the headlines. But if you are in a balanced and diversified portfolio, you are likely down much less than the market.
After a big decline, markets have done very well from a historical perspective. Stocks have averaged positive returns over one-, three-, and five-year periods following bear markets (please see below).
These are just averages, but this chart helps to paint the picture of why staying invested for the long term tends to benefit investors over time.
2. Are we in a recession?
Recessions are identified with a lag – by the time one is announced, the worst of its impact is usually behind us. A recession is a significant decline in overall economic activity.
As of right now, we cannot say we are in a recession - but we should know soon.
Since 1980, the average market low was reached before the announcement of a recession (please see below).
3. What to do when the market is down?
As the old saying goes, "your time in the market beats timing the market." And we truly believe this. However, there are ways to take advantage of a down market. We can:
- Rebalance: this keeps your portfolio in line with your goals and is a systematic method of buying low and selling high.
- Harvest tax losses: no one likes a loss, but at least you earn a tax benefit. Keep in mind that this only applies to non-qualified accounts.
- Invest excess cash: this is undoubtedly the hardest (and best) strategy during tough markets, but it is not for everyone.
If any of these opportunities may benefit you, we are taking action or will discuss them with you, if we haven’t already. As always, please feel free to reach out any time you wish to talk.