Jul 9, 2022
The theme this week on the Retirement Quick Tips Podcast is mid-year commentary & outlook.
Today, I’m talking about what to do about the fact that the stock market, bond market, and the economy are all in the doldrums.
The most important thing to remind yourself of during gloomy times is: this too shall pass. Volatility in the markets and declines of 20% or more are a healthy and normal part of any economy and are unavoidable.
If you think that you can avoid the pain by selling, think again. You have to sell at the top when everyone else feels euphoric, and buy at the bottom when everyone else has lost all hope in the future. You have to be right both times, and I’ve never heard of any investor who was successful at timing the markets, ever!
So if you’re going to stay invested, which I darn sure hope you are, what can you do?
First of all, look at your overall mix of stocks and bonds. If you have too little in stocks at the moment, do some selective rebalancing to take advantage of the current stock market decline by adding to stocks where appropriate. This rebalancing may only be small and on the margins, but adding to stocks after a 20% decline is a great time to start rebalancing.
If you have excess cash that should be invested, start putting it to work. I like investing over a period of 6-12 months from this point, which I think is prudent. If you invest the cash in equal amounts over that time, you’ll be fully invested by the time this bear market is getting long in the tooth by historical norms, if it continues that long.
With the average stock down 30% this year, it may be tempted to buy just anything on sale. Don’t fall for the temptation to buy the ugly yellow trucker hat that you’ll never wear, because it was $3. $3 is still too much to pay if its an ugly hat that you’ll never wear. The same is true for stocks.
No matter what, always be discerning and look for quality. I continue to prefer high-quality, dividend growing stocks, mutual funds, and ETFs as the core of my client’s portfolios. I’m a strong believer that this tilt toward predictable, resilient, and financially healthy companies with strong balance sheets and growing dividends will pay off for clients in the long-run. These companies have a history of weathering economic downturns exceptionally well, and coming out the other side in a stronger position, since many of their less healthy competitors fall away in a recession.Those are the kind of bargains you want to hunt for.
In bond portfolios, I continue to prefer bonds with high quality and stable credit ratings on the shorter-term end of the spectrum (less than 5-year maturity), floating rate bonds, and treasury-inflation protected bonds. This bond allocation with a tilt toward shorter term bonds will help you re-invest sooner for higher income if interest rates continue to rise, which I expect that they will..
As a result of these stock and bond portfolio allocations, most of our clients’ portfolios are more stable than their comparable benchmarks, which is encouraging. And that’s what you’re looking for too if you’re like most people nearing retirement - stability, income, and more predictable returns.
That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the Retirement Quick Tips podcast.
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Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance