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  • Susan Spraker, Ph.D.


I am taking the liberty in this Commentary to repeat advice I have given in my column for almost 3 years. The quotes are as pertinent now as then. When this downturn reverses, which it will, I hope you always follow these investing principles.

In the January 2020 Commentary, just one month before stocks were at all-time highs, I wrote:

“Finally, the next portfolio move to further reduce investment risk is to withdraw now any cash you will need for the year. For those who prefer an even safer position, calculate your cash withdrawal needs for the next 2 years. We then would know that the target cash position in your portfolio can be deployed for buying opportunities. Regardless, call us as soon as possible with the information.”

We reiterated this advice in the April 3, 2020 Commentary because when you have enough cash for 1-2 years of needs and emergencies, you won’t panic about portfolio downturns. You know you won’t need that money.

In the July 2020 Commentary, I reminded:

We are issuing the same ADVICE we did in January, when stocks were near all-time highs. Six weeks after that advice, global stock prices plummeted 25%-30%...: If your annual expenses exceed your income and/or if you have inadequate emergency savings, call our office to let Kelly know the cash you will need from your portfolio to cover that 12-month shortfall. NOTE: IF YOU ARE ON A SYSTEMATIC WITHDRAWAL PLAN, we again urge you to have us stop that and take it all NOW while STOCKS ARE BACK NEAR ALL-TIME HIGHS. Of course, if you are able to reduce expenses and withdrawals during this recession, that will also take pressure off your portfolio.

Those of you who followed this advice in January and February benefitted greatly in two ways: you needed no withdrawals once the market sank late February through March, and it took pressure off the portfolio, allowing us to hold on to your stock positions, riding out the downturn….

In October 2020, I looked back at the long-term rewards despite exasperating volatility inherent in investing:

Stock prices going down…does not mean a loss unless you sell. From 1984 to 2019, the S&P 500 declined 5% in every year but two. The median intra-year decline over the past 36 years is -9.6%. Still, stocks have posted annual gains in 30 of those 36 years, averaging 14.4%. Market corrections are opportunities to buy good companies on sale.

From 1978 through 2019, $100,000 invested in real estate (Schiller Home Price Index) grew to $560,000; gold $686,000; government bonds (Bloomberg Barclays US Treasury Index) $1.7M; large cap stocks (S&P 500) $10.3M; small cap stocks (Russell 2000 Index) $11.4M.

In January 2021, I reviewed the 5 keys to successful investing. One of them remains a guiding principle:

Risk Tolerance: Investing is very different from saving in that investing involves being a participant in a market whose prices move up and down on a daily basis. Knowing how well you can ignore market movements is crucial to successful nest egg building. In fact, market volatility is an opportunity to take advantage of “sales,” whereas savings has no such sale pricing. However, we must know our risk tolerance to be successful. It can be measured, both by recognizing how upsetting are price movements (volatility) that include portfolio value declines, as well as by knowing how upsetting is trying to time a market that cannot be timed. Which is more upsetting: being in the market when it is down or not being in the market when it has gone up? Selling when prices are down is not as hard as buying back when the prices are higher than when sold. Buying when prices are down, regardless how low, to build nest eggs is a key investing lesson. Think about referring to the 2008-2009 and 2020 stock market price charts when you get scared.

In April 2021, I discussed trying to predict or time the market:

Do you remember how your portfolio was invested on October 1, 2007? The S&P 500 Index closed the day at 1557. That number probably means little today, but it reflected a 5-year climb of 88% from the March 2003 bottom of the tech bubble demise.

Sometimes we think we want to forget that October, all of 2008, and the first two months of 2009. By March 2009, at the very bottom, people rushed to liquidate anything and everything to raise cash. But the smart money was buying, and indeed, that bottom was the beginning of the recovery.

In July 2021, I reiterated the importance of saving your cash and delaying unnecessary purchases while markets are down:

Save your cash to pay cash for those items that you know will not hold their value. In effect, be your own banker. Your long-term returns will be higher than paying to borrow your own money!

When we hold enough cash-1 to 2 years of living and emergency expenses-safely in our banks, we have the freedom to ride the nauseating waves of stock and bond price volatility. I discussed this October 2021:

Global titans of investing ignored headlines, whether inflation prognostications, debt ceiling drama, politics or international intrigue. For decades, their success as portfolio managers was built on corporate research, buying shares of companies expected to grow over at least the NEXT decade, holding those shares through economic cycles as long as they believed in their continued growth, and buying more when the stock was on sale.

I’ll conclude with my final thoughts from my last Commentary column 3 months ago:

…However, it is tricky to raise rates to tame inflation and not cause a recession. That is why a downturn at some point in the next 2 years is more likely than in the recent past. The Fed will continue to raise interest rates this year but it’s important to remember that they are raising them from virtually 0% just 2 years ago. Rates are still low. Whether economic activity will continue to expand or when it will contract and by how much is unknown.

During this time, it is critical as investors to continue with the existing portfolio allocation but to also reassess risk tolerance so that during and out of the bear market bottom, the investments continue to reflect the risk you are willing to tolerate based on the established long-term financial goals and objectives. If possible, the best thing to do during a bear market is to add to good stocks that are on sale.

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