Insights

What to do in a close encounter with a bear.

Should you find yourself encountering a real-life bear in the wilderness, your best course of action is to stay calm and stand your ground. Experts advise to not make any sudden movements that the bear might find threatening. While it could be unnerving for you personally, statistics prove that most bear encounters end without injury.

The same holds true for your investments. Selling during a down-market could be very difficult to recover from. Bear markets are normal. There have been 26 bear markets in the S&P 500 since 1928.  However, there have also been 27 bull markets. And stocks have risen significantly over the long term.

U.S. Stock Market – 1 Year Total Returns Following 20% Drop

The silver lining

With stocks and bonds trading at much lower prices, one could argue they are “on sale.” The price-to-earnings ratio for U.S. stocks, a measure of how much a dollar of earnings costs on average, has gone from 23.9 at the beginning of the year to 19.1 at the end of May. Bond yields are also higher than they have been for a few years, with the five-year Treasury bond yield near 2.9% compared to less than 1.4% at the start of the year. That means stocks and bonds are now a better value—and we expect greater potential for future returns.

For many of our clients, we have already taken advantage of the price changes by:

  • Rebalancing accounts to “buy low and sell high,” allowing us to move more money into the asset classes that are relatively cheaper now.
  • Tax-loss harvesting by selling investments for a loss while moving into a different fund that has a similar strategy. This may reduce your tax bill.

Here’s some other ideas that can help you take advantage of the down market.

  • Increase your contributions – If you’re already contributing to your company retirement plan, IRA, or trust account consider increasing the amount. Adding more money now means you can benefit from the recovery when it occurs.
  • Convert an IRA to a Roth – With prices down, this may be a good time to convert a traditional IRA to a tax-free Roth IRA. This could allow the market recovery to be captured in a tax-free account.
  • Set up a 529 Plan – If you plan to help your children or grandchildren with future education expenses, consider establishing a 529 plan for them — or adding to it if you already have one. Your contributions can take advantage of lower prices.

Looking Forward

During periods like the first half of this year, it’s natural to be nervous about markets and wonder about your financial plans. Keep these points in mind with a long-term, forward-looking perspective:

  1. The risk and return experience so far this year for most asset allocations is within the range of potential downside risk that we consider in the financial plans that we create for clients.
  2. Inflation is expected to moderate to more normal levels.
  3. Interest rates have increased substantially in 2022, even before the Federal Reserve announced rate increases.

So, enjoy your summer knowing that odds-are, you will not have to worry about bears. And, if you’re still concerned, be sure to reach out to your ZRC Wealth advisor or anyone on the ZRC Wealth Management team. For more on our take on the 2nd Quarter click here.

As always, we are grateful for the opportunity to serve you and your loved ones. If you know of others who could benefit from a conversation with us, please do not hesitate to make the connection. We would be more than happy to provide a complimentary consultation.

Sincerely,

To schedule a 30-minute meeting with Barry Mendelson, CFP® – Wealth Advisor & Financial Planner https://calendly.com/zrc-barry-m/meet-with-barry

To schedule a 30-minute meeting with Kevin Goulding, CFP® – Wealth Advisor & Financial Planner https://calendly.com/kevin-goulding/meet-with-kevin  

All investing is subject to risk, including the possible loss of the money you invest. Past performance is no guarantee of future returns. Diversification does not ensure a profit or protect against a loss in a declining market. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.