Welcome to the Bear Market. Advisors Weigh In.
By Tom Taulli
On Monday, as the stock market opened sharply lower, the S&P 500 officially entered bear market territory.
The S&P 500 peaked around 4800 at the beginning of this year. But since then, the market has ground lower—with occasional rallies. The benchmark index has now fallen about 21% from its high. For this week’s Barron’s Advisor Big Q, we asked advisors: What does this milestone mean for investors? And how can financial advisors help their clients?
Dennis R. Nolte, vice president and financial advisor, Seacoast Investment Services: We’ve been talking with clients for six months about how the second quarter of this year would be tough because of earnings comparisons being more difficult. We were not expecting the double whammy of interest-rate hikes being more pronounced because of persistent energy and food cost increases. There’s been nowhere to hide. We don’t think we’re at the bottom. This is not an opportunity unless you have money you do not need for three to five years. And most folks don’t have the emotional wherewithal to see their “wealth effect” diminished, even if it’s not relating to funds that are being used for lifestyle choices.
Brian Schmehil, senior director of wealth management, The Mather Group: You should not be proactive in changing your long-term investment strategy due to short-term volatility and stock market drops since it is impossible to market time. If you did not safeguard enough cash for near-term goals or have a proper bond allocation to tap into when the stock market is down, you should dollar-cost average over the course of the next few months to build those safeguards and reduce market timing risk.
Jeremy Finger, founder and CEO, Riverbend Wealth Management: Would you sell your car and buy a bike because you caught a red light? Investing does not have an off/on switch. It’s more of a dimmer switch with perfect little adjustments. Best to stick to the plan and stay in the middle of the road. But I do recommend that clients keep enough emergency cash, say one year for retirees.
Judson Meinhart, senior financial advisor and manager of financial planning, Parsec Financial: We always stress to clients the importance of letting life circumstances change your asset allocation and not market conditions. Getting more conservative or going to cash in a down market can be damaging to a long-term financial plan. Down markets are a great time to execute tactical strategies like Roth conversions. You can convert assets that have taken a hit in the recent pullback, realize a smaller tax hit, and capture any potential future gains in a tax-free Roth IRA.
Bradley Lineberger, president, Seaside Wealth Management: Market volatility is why equity investors get paid handsomely over time. There have been about 15 bear markets since World War II and more if you count the near-misses in 2011 and 2018. Bear markets are a normal part of the process. That being said, you can’t let fear of the next 10% to 20% decline prevent you from missing out on the next 100% to 300% increase. The last time we had high inflation, the Fed raised rates and sent the economy into a recession. But from July 1982 to August 1987, the market recovered and went on to triple [in value]. Anyone who missed it would have been devastated. You can’t time the market.
Editor’s Note: These responses have been edited for length and clarity.
Tom Taulli is a freelance writer, author, and former broker. He is also an enrolled agent, which allows him to represent clients before the IRS.
