The stock market is officially in a bear market. That happens when stocks decrease by 20% or more from their most recent high. Some investors find that terrifying, while others want to get in on the action.
“Currently, my clients fall into two categories,” says Bret Edensword, financial adviser at BECU Investment Services. “The ones who don’t want to take risks, which I totally understand, and those who are anxious to buy now, which I also understand. The current bear market has made these two types of clients stand out.”
A bear market and a market correction aren’t the same, but eventually the market will need to correct itself. Edensword describes a correction as a moment where the market refreshes itself. It’s much like climbing Mount St. Helens, he says, because every so often you need to stop and take a breath in order to keep going.
“Four to seven market corrections of 10% to 15% occur every year,” says Edensword. “Not to worry, though, because a market correction is super healthy.”
To put the market into perspective, Edensword says, there have only been 27 large corrections since World War II.
“The last time it happened was because of derivatives and bad home loans made in 2008,” (a derivative is a financial instrument that “derives” its value from another underlying asset and has no value on its own) explains Edensword.
He feels that the market today has created great buying opportunities. In 2008 the S&P 500 was at 831 points. Today it is at 4150, which is a remarkable 3900% gain.
“Some companies have lower-priced stock now and I plan to buy some for my grandson’s portfolio,” says Edensword. “He’s 10 months old.”
The current market volatility gives investors a chance to buy stock in high-quality businesses at lower than normal prices, says Mike Pankaskie, a financial adviser also at BECU Investment Services.
“When everything is going well, asset prices tend to rise faster than the intrinsic value of that asset,” Pankaskie says. “When there’s a great deal of economic turmoil, prices tend to do the opposite.”
The current overall sentiment of investors now is very negative. High inflation, the war with Ukraine and Russia, a potential recession and the Federal Reserve raising rates stoke that negativity. “But it gets me excited,” says Pankaskie.
He says he truly believes this quote from Warren Buffett, one of the most successful investors. “It is wise for investors to be fearful when others are greedy and greedy when others are fearful.”
“This is the time to really invest,” Pankaskie says. “Even if this current market turns out to be as bad as the one in 2008, history has shown that the market has come back.”
Edensword says it’s OK to be aggressive with your investing if you’re comfortable with it. If you’re not as comfortable with investing so aggressively, stay put until the recovery phase. Even Edensword’s 401(k) is down now, but he has only rebalanced it to slow the bleeding.
Many of Edensword’s clients say they want to be back where they were before this volatile market hit. He cautions them to let the market do its work. “Any time I make a recommendation, I want my client to hold it for a minimum of 3-5 years,” Edensword says.
Although investor anxiety is currently at a high, financial advisers like Pankaskie have strategies that can help ease your fears. Pankaskie says that investors will have a different set of problems in 5 or 10 years. The market is cyclical, so everything that feels new has likely happened before, and will happen again. Understanding those cycles can be the key to success.
When you invest, it’s important to talk to a trusted and knowledgeable financial adviser. You should speak with a financial adviser first instead of using your emotions to guide you.
“The market goes up and down, so you need a financial adviser who will give you the confidence to get through those highs and lows,” says Pankaskie. “[They] will help you invest your assets appropriately in case of a downturn in the market.”
Whether you’re nearing retirement or just starting out, the financial advisers located at BECU Investment Services will help create a personalized plan to help you work toward financial independence.
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