A secular bear market can cost you both time and money and delay your retirement goals. Several strategies can allow you to survive and even prosper in this type of market. A bear market is commonly defined as a market price decline of 20% over a relatively short period of time, this decline often coincides with a recession. A secular bear market lasts much longer; the S&P 500 a common stock index that is often used to measure market performance has in recent weeks hovered at levels seen 9 years ago, we are fast approaching a decade without growth in the value of this index.
This type of market requires that investors and their advisors take a more active approach to portfolio management. The first step to defending your portfolio is to revisit your stock allocation; are you invested in the broad market? Do your holdings look like a mutual fund advertisement with titles such as “large-cap growth, large-cap value, mid-cap growth, mid-cap value, etc, etc, etc? Investing in the broad market with index funds or mutual funds can leave your portfolio over-weighted in stocks that have done well historically and underweighted in stocks that are positioned to do well as the economy cycles. Recent studies have shown that sector specific allocations can provide better performance especially in a bear market; consider being over-weighted in defensive sectors such as consumer staples, health care, and utilities; while underweighting consumer cyclicals, financials, and technology.
The second step to defending your portfolio is to consider allocations in asset classes that have a low-correlation to the broad market (meaning they have the ability to go up in value as the market goes down). These asset classes include but are not limited to commodities, real estate, and precious metals. Thanks in large part to recent innovations in exchange traded funds (ETFs) investors can add these assets to their portfolios with relative ease. If you have an antiquated stock and bond only portfolio, seriously consider further diversification in this market.
The third step to defending your portfolio is to manage the fees you pay. Mutual fund companies, insurance companies, and brokers will in most cases continue to make money regardless of the markets performance, make sure that any fees you pay are earned. In a bear market these fees can come out of your portfolio’s principal balance further reducing your nest egg, as the famous old west saying goes, “If you find yourself in a hole stop digging.”
Finally, it is easy to give up and walk away when things are tough, don’t give up on investing; poor performance in an entire portfolio can often be the result of a poor allocation which can be fixed. What you don’t want to do is give up when your portfolio is down and turn what could be a temporary bear market into a permanent loss. Make sure that you are taking full advantage of all the tools that are available to you and that you seek the advice of a competent professional with expertise in active portfolio management.
Brandon Bailey (brandon@nobleasset.com) is a Registered Representative offering securities and advisory services through Independent Financial Group LLC (IFG) (member FINRA/SIPC) 903 E. Winding Creek Drive Suite 100 Eagle, ID 83616, (208) 921-8300. Noble Asset Management and IFG are not affiliated entities. This information is not intended to indicate suitability for any particular investor, the opinions are those of the analyst, and the opinions and information presented are subject to change without notice. This article does not constitute an offer to buy or sell any security. Mutual funds are available by prospectus only. You cannot invest directly in an index. Past performance is not indicative of future returns.
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