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Survivors Guide to Bear Markets Thumbnail

Survivors Guide to Bear Markets

Financial Planning Insights Investing Behavioral Finance

A bear market is defined as a sustained period of downward trending stock prices, often triggered by a 20% decline from near-term market highs.  Over the last few months, markets have entered a bear market due in large part to the Federal Reserve’s interest rate hikes in response to decades-high inflation.  With all of the negative volatility to start the year, investors may be wondering how to react when it comes to their investments.  While each individual’s situation is unique and specific advice will vary here is the Michael Brady & Co. Survivor’s Guide to Bear Markets.

  • You can’t predict when bear markets will end, so don’t try.
    1. Part of what makes a bear market especially unbearable, apologies for the dad joke… is that nobody, no matter what their level of expertise or insight might be, knows when or how they will end.  Don’t waste your time and energy trying to predict the unpredictable, seek tranquility and peace of mind in the knowledge that your financial plan has accounted for the possibility of a bear market and you have prepared your finances for a situation just like this.
  • Fight the urge to make emotional decisions.
    1. This will be especially hard if a bear market hits you early in your retirement.  As you start to see your nest egg evaporate, temporarily, off your monthly statements you may be inclined to seek immediate safety by moving your stock investments to cash.  While this decision may provide you with a feeling of relative safety, you have put yourself in the precarious position of having to time the markets, which is a losing game.  Better to have an appropriate asset allocation that allows you to withstand any and all market volatility so that you can stay in the game and avoid harmful emotional decisions.
  • Have a gameplan for reducing expenses
    1. No one likes having to cut back on living expenses.  But part of being prepared for bear market scenarios means having a plan for how to cut back temporarily so that you can ease the income pressure on your nest egg.  Chances are that your portfolio is invested in a way that you will not have to implement your expense reduction plan, but that doesn’t mean you shouldn’t have the discussion.  Using our retirement income guardrails can help determine when it is appropriate to reduce your monthly income in order to preserve your nest egg for the future.
  • Know that markets have always recovered to new all-time highs
    1. It’s important to remember that bear markets are a part of normal market cycles.  While they cannot be predicted or forecasted for length and severity every bear market in the past has seen a bull market that runs longer and provides investors with new all-time highs for stocks.  Investors with patience and discipline are rewarded over the long term.  This is why we believe in buy-and-hold long-term investing, proper asset allocation, and personalized risk measurements.

Remember these 6 Keys to long-term success in retirement 

  1. Behavior, Not Performance
  2. Planned, Not Fortuitous
  3. Reason, Not Emotion
  4. Markets, Not Managers
  5. Decades, Not Years
  6. Signals, Not Noise

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