Here we are on the verge of a bear market. This after being on a wild roller coaster ride with COVID for the past couple of years. 

You’re probably wondering…

1. How did we end up here?

2. What is driving the bear market?

3. And, what is the best strategy to navigate the market downturn?

In this article, I’m going to answer each of those questions one by one. My hope is that, by the end of this article, you’ll have a good strategy that will relieve some of your anxiety about the 2022 bear market.

Let’s cut right to the chase. How in the world did we get here?

The Bull Market of 2020 (and 2021)

There has been a MASSIVE amount of uncertainty since the start of the pandemic in 2020. I’ve been watching fear unfailingly take center stage since COVID hit the U.S. 

I don’t know about you, but where I lived at the time things got pretty crazy. 

I remember shoppers becoming aggressive as they scoured the grocery store for milk, fresh meat, toilet paper and cleaning supplies. Clients contacted me in a panic as the stock market plummeted in a matter of a few days. 

My family moved into our new Florida home on March 30, 2020, just days before a statewide shutdown. Our governor declared a 30-day stay-at-home order. During the springtime months of the pandemic, I honestly thought we were heading for a recession.

Then the tide turned rapidly in June. 

Patient investors who stayed in the stock market were rewarded just a few months later. They went on to achieve double digit investment returns the rest of 2020 and in 2021. 

In all my years as a financial advisor, I couldn’t make sense of the situation because it was counterintuitive. Here we were in the midst of a global pandemic, and the stock market was on fire!

I noticed many of my new neighbors buying golf carts and installing pools for twenty to thirty thousand dollars more than what they would have paid if they installed the pool prior to home completion. Where were they getting all this money?

“Oh, now I remember,” I thought. The stimulus payments.

Most people were spending their government stimulus checks, which was (artificially) boosting the economy.

So here I was busy helping small business owner clients secure much-needed Paycheck Protection Program funding in summer 2020… and my neighbors were spending like there was no tomorrow. 

To add to the confusion, the stock market started rising rapidly. We were in the middle of a global pandemic, and yet the economy seemed to be stronger than ever before.

We found ourselves squarely in a state of irrational exuberance.

Clients in the hotel industry were forced to furlough and lay off some employees in March and April 2020 – only to find that those same employees wouldn’t return in September and October. A client in the pizza business couldn’t get half of his team members to show up for shifts.

Why? Because unemployment benefits were more financially lucrative than paid employment, especially for workers earning minimum wage.

Then the Great Resignation of 2021 happened. White-collar workers were quitting their jobs.

As more adults left the workforce, employers had to pay more to attract and retain quality workers. That’s still the case today.  

When employers have to pay more for labor and supplies, what do they do? 

Some will find expenses to cut, while others focus on raising their prices. Wage growth, coupled with global supply chain issues, led to record-high inflation. 

In fact, the inflation rate more than doubled between March 2021 and March 2022 from 3.7% to 9.2%.

The stimulus payments stopped, and people started to realize that maybe our economy isn’t so strong after all. Fear began to creep back in. 

To tamp down inflation, the Fed has and will continue to raise interest rates in 2022. This action negatively impacts the prices of bonds (especially long-term bonds). It also means that mortgage rates are rising. The hot housing market of 2021 is beginning to cool. More housing inventory and higher mortgage rates cause affordability concerns. 

The pendulum has swung from a state of irrational exuberance to immense fear in under two years, resulting in what is now the edge of a bear market.

How Fear Affects Decision Making

Let me ask you an honest question. Do you ever make a good decision when gripped by fear? I certainly don’t.

The other night, my husband Bryan decided to go for a “quick” bike ride at dusk. He knew we had to get our boys to bed soon thereafter. 

Twenty minutes passed. Then thirty. Still no sign of Bryan.  

I started to get worried and was trying to rush our bedtime routine to figure out what happened to him. Our boys detected my worry, and their levels of anxiousness arose.  

Did a car hit him because it was already dark? 

I looked up the phone number for our community patrol and was about ready to call when Bryan finally showed up.  

My immediate reaction upon his arrival was anger. How could he stay out so late? Why didn’t he take his phone and call to let us know he was okay?

Then peace settled in as I heard his simple explanation: Bryan ran into a neighborhood friend, and their conversation was longer than expected. My husband was home safe now, and that’s all that mattered.

My belief that something bad must have happened to my husband drove me into panic. I couldn’t think rationally. All I could focus on was the worst case scenario.

Notice, too, that my anxiety was infectious. My boys caught on to how I was feeling.

Now imagine millions of investors believing a worst case scenario and feeling that same panic and fear. Do you think they’ll make wise investment decisions?

Let’s talk about how those emotions are affecting the market.

Fear and Market Volatility 

Fear and anxiety aren’t necessarily bad emotions. They are meant to protect us from environmental threats. It’s okay if you feel these things.

Fear and anxiety are normal reactions to the market volatility we are currently experiencing. The Cboe Volatility (VIX) Index, which measures the market’s expectation of future volatility, is running high after all.

The danger for do-it-yourself investors is that there isn’t a professional advisor by your side to help you step away from the proverbial ledge. With each significant stock market decline, you may be tempted to cash out due to fear.  

But that’s the worst thing you can do right now.

Market timing is dangerous because you can time the exit, but you cannot time the best re-entry point. I don’t know of a single economist who can repeatedly call the market bottom.  There is no crystal ball.

We’re certainly in bear market territory in the Russell 2000 and Nasdaq. The S&P 500 is heading in that direction as well, defined as a decline of 20% or more.  

If you’re confused by “bear” and “bull” market terminology, I have a helpful analogy.  

Picture a bull forging ahead with other bulls, maintaining a position of strength and gaining speed or momentum as he moves forward. Bull markets are good. 

Now envision a bear in isolation, bringing his paw down as he searches desperately for food. Bear markets aren’t pleasant.

And yet, both animals are crucial in the circle of life. Bears enrich the soil and, as predators, keep the deer and moose populations in balance. There’s a cycle to pretty much everything, including the stock market.  

Let’s explore a personal example. 

When a loved one is going through a health crisis, it’s awful at that moment. It takes immense mental energy to have just a sliver of hope. But if that person is healed, you have newfound respect for your relationship and the hardship encountered. You both come out stronger on the other side.

Same with the economy. A downturn feels terrible while it’s happening, but we feel immense relief and appreciation when the economy swings back the other direction.

Your Strategy for Investing in the 2022 Bear Market

Bear markets aren’t fun. In fact, they are downright painful for investors. The more money in savings, the more money we potentially have to lose. 

However, our resiliency in the midst of a bear market helps us appreciate the bull market that much more. And for committed followers of Christ, we believe that God owns it all. We’re just stewards of the resources He has entrusted to us.  

Below are bear market investing strategies for parents at every stage of life to invest with faith during this downturn and to seize opportunities.

Nearing Retirement

If you are contemplating retirement within the next year or two, consider waiting to retire until the bear market has passed. Investment withdrawals in the early years of retirement have a substantial impact on the future value of your investment portfolio.  

Explore ways to earn extra income (without drawing on your investment portfolio too much) if you must leave the workforce immediately for health or other reasons. Just be careful of earned income limitations if you claim Social Security benefits prior to full retirement age (FRA).  

A fiduciary financial planner like me can help you explore different retirement scenarios, including the timing of Social Security and pension payments.   

Newly Retired

In a bull market, my advice for newly retired clients is to go out and do the things you’ve been waiting years to do: travel, dote on grandkids, and enjoy life while your physical health is strong.  

However, a bear market behaves differently than a bull market, and the 4% rule isn’t a sure thing.  

For those parents who recently retired, my hope is that you previously repositioned the investments to provide a cash cushion that will fund a year or more of living expenses. It’s critical to minimize withdrawals from an investment portfolio during a bear market to ensure the portfolio can withstand continued market volatility. 

Cut expenses where you can. Contemplate postponing the roof replacement or other big home projects until the economic picture is rosier. Likewise, you may want to start a part-time job or consulting gig during this market downturn if you’re able.   

You’ll want to speak with a retirement advisor who will model out the long-term implications of claiming Social Security before full retirement age, at FRA, or after FRA.  

Age 70 is the latest age at which you can start claiming Social Security benefits. The longer you defer Social Security and/or employer pension payments, the more you will have to rely on your investment portfolio or part-time employment for retirement income initially.  

Whether newly retired or on the cusp of retirement, your investments should be more conservative than they were a year ago. You should be focused on asset preservation rather than accumulation. 

Fixed annuities could be an attractive investment, especially as the Fed expects further interest rate hikes. Within your bond portfolio, shorter-term bonds won’t be harmed as much as long-term bonds while interest rates continue to rise.    

Mid-Career Professionals

Asset accumulators are in an enviable position during market downturns.  

As a teenager and young adult, I’d often find myself in TJ Maxx or the clearance section of a favorite clothing store scouring the racks for deals. 

Why? Because I didn’t like paying full price for a new outfit. I wanted to buy it on sale.

Right now, equities are on sale. Small and mid-cap equities have been hit hard in 2022, especially when compared to their large-cap equity counterparts. 

Certain industries are discounted more than others. Promising biotechnology companies have been crushed, while the energy sector was on fire in Q1 2022.      

We can view these short-term losses as tragedies OR see them as golden opportunities, ripe for long-term investment. I’d suggest the latter.  

Many of my clients in their 40s and 50s are experiencing rapid wage and bonus growth alongside promotions since employers are paying big money to keep quality employees happy.  

This means the gainfully employed can maximize retirement contributions, fund 529 college savings plans, and in some cases, invest additional money in diversified investments through a taxable brokerage account.

Faith-Based Investing in Any Market

Parents nearing retirement, recently retired or in the middle of their careers have one thing in common when it comes to investing: you have more influence than you’d expect.  

You may not be able to control daily stock market movements, but as a Christian you can invest in companies who seek to do good in the world with a clear conscience.  

WorthyNest® clients not only have access to traditional investment portfolios, but also faith-based investments stemming from biblically responsible principles.  

Faith-based positions use an avoid, engage, and embrace methodology. They intentionally exclude companies that profit from unethical activities such as abortion, euthanasia and pornography. 

They may also engage in shareholder advocacy and speak to investor relations representatives when a company is involved in a questionable business practice, but company revenue from the activity is less than 5%. 

Finally, faith-based investors embrace companies who create positive social change in an ethical manner.  

 

Next Steps

Becoming a parent is one of the greatest joys and responsibilities that life has to offer.  When you work hard, it’s often not for your benefit but for your family’s benefit. 

Your sacrificial giving, love, and dedication to family do not go unnoticed.  

However, it’s easy to get caught in the trap of thinking that earning more money is equivalent to a better financial future. It’s what you do with money AFTER it is made that has the most impact.  

Making investment decisions in isolation during a tumultuous time will only heighten your anxiety.  

“Plans fail when there is no counsel, but they succeed when counselors are many” (Proverbs 15:22, New American Bible, Saint Joseph Edition)

Important financial decisions that will affect your family for years to come shouldn’t be DIY.  Holistic, customized investment and financial planning guidance for your family starts at $300 monthly.  Schedule an intro meeting today if you are interested in exploring a one-on-one relationship.