By Brad Singer
Many investors have noticed that the stock market has suffered some losses recently and have watched their portfolios drop in value. Is this a good time to reassess your investment strategy?
What is a Bear Market in stocks? Typically, a so-called Bear Market is a 20% drop from peak to trough of a popular stock index such as the S&P 500 index. The Standard and Poor’s 500, or simply the S&P 500, is a stock market index tracking the performance of 500 large companies listed on stock exchanges in the United States. So far in this cycle, the S&P 500 index down about 9.5% from its peak in early January.
What’s happening?
Three things have contributed to the recent weakness in stocks. Inflation, rising interest rates, and geopolitical events or the threat of war in Ukraine.
Inflation or a persistent rise in retail prices have weighed heavily on the average consumer’s pocketbook. The rising cost of gasoline, food, and rents have taken a big chunk out of the average American’s monthly budget. Currently, the pace of inflation is running at around 7.5%, far above recent norms and the highest rates in 40 years.
This persistent rise in inflation has caused the Federal Reserve, our monetary authority, to send a message they will begin raising interest rates significantly soon.
Short term rates have been hovering at near zero since early 2020 when the Covid-19 virus led to a sharp slowdown in the economy.
Adding to the uncertainty, the recent threat of conflict in Europe between Russia and Ukraine has ramped up investor jitters.
What should investors do now?
It depends. Now may be a good time to review your entire portfolio including all your statements and add them together so get a complete picture of your investments.
Retirement savers between the ages of 25 – 45 should not be too concerned about recent events and the recent ups and downs of the markets. They should probably stay put assuming they are well diversified in their assets. The typical range would be between 70% and 90% stocks vs. bonds.
If you are approaching retirement or have already retired, then ask yourself if you are taking the appropriate amount of risk given the fact you will likely start drawing a paycheck from your investments soon. If you find yourself more than 80% in stocks, then you may want to do a reality check and rebalance your portfolio to maintain a proper risk posture as you get nearer to your planned retirement date. If you find that you are carrying large, uninvested cash reserves that exceed any funds needed for emergencies, now may be a good time to consider putting some of that idle cash to work even if markets continue to fall further into bear market territory.
