Bear market brings out bad advice

Americans don’t want to hear about how the economy is poised for a recovery or inflation might be peaking or about long-term investment opportunities in the stock market.

They want to see something convincing.

Until they see that kind of proof, words are just platitudes.

I don’t blame savers and investors for being grumpy. Real disposable incomes — what people have left after adjusting for taxes and inflation — were off at an annual rate of 7.8 percent during the first quarter of 2022, according to a recent disclosure from the Bureau of Economic Analysis. Historically, it takes a recession to generate a drop of that magnitude.

What makes me grumpy these days is less the market than the hokum and inanity that would-be experts are using to calm investors right now.

It’s a cacophony of pablum that contributes to the market’s noise and nonsense without generating the feel-good reaction the speaker is hoping for.

With that in mind, here are four of the least-convincing things pundits are saying to make investors feel better as they muddle through hard times.

If these phrases haven’t perked you up – or instead just angered you more, as they did me – you might find out from them what you really should be listening for.

“Find an investment strategy that works for you and stick with it.”

If you did this a few years back, it was great advice. Keep running with it.

Any prudent plan would have included some preparation for a bear market, a possible recession and more, even if no one could foresee current events.

But if you’re just getting this message now, it could be a problem.

The “strategy that works” for many people during volatile times is to keep a lot of money on the sidelines. Collectively, American households have more than $18 trillion parked in bank accounts and money market funds, up by more than $4 trillion since the start of the pandemic.

That cash is safe from market declines, but it is losing ground to inflation. Rapidly.

And while short-term savings should be kept liquid, long-term investors should stick with the long view, using the market’s decline to buy stocks and funds that will help them grow assets for a lifetime.

Investment strategies are about preparation, and it’s hard to prepare for turbulence when you are in the middle of it. In those moments, you mostly know that you want to problem to end, to make the uneasiness stop.

That’s hardly the environment for sticking to a plan that included a course for riding out downdrafts.

Yes, having a plan is the best way to persevere through tough times, but if you’re just making that plan now — after the market has had one of its worst six-month starts to a year ever – toss comfort out the window. You’re doing something difficult, that requires accepting hard, uncomfortable choices.

This is no time to panic.

Aside from insinuating that there is an ideal time to freak out and that hysteria can be an actual investment strategy, this mantra doesn’t ease anyone’s fears, as the implication is that it might be a great time to be scared and confused and any frightening emotion that stops just short of actual panic.

There are plenty of strategies on the road from here to panic. If someone tells you only not to go straight to the final destination, they’re not telling you anything you didn’t know all along.

The next time someone urges you to remain calm, check where you are on a scale of Zero-to-Full-Blown-Panic. If you are way over toward the freak-out zone, consider what you can do to reduce your stress without damaging your long-term financial plans.

“The market will come back; it always does.”

 This is unhelpful because it’s a classically bad forecast; it lacks a time frame.

The good forecasters don’t just tell you what will happen, they have an idea about when it will occur.

Talking with experts every day on my podcast, “Money Life with Chuck Jaffe,” I have heard seemingly every possible forecast about how long the doldrums could continue. If inflation stays high for three years and the Federal Reserve can’t get a better handle on things, this could be a protracted bear market.

Lots of people are ready to buckle up for trouble, but they’re not necessarily anticipating a downturn that lasts years.

Yes, I believe the market will come back, and that investors who buy relative bargains in stocks that have been beaten up will someday be rewarded handsomely. But investors will be best served by making sure their short- and intermediate-term needs are met and covered, ensuring that they don’t have to dip into long-term investments under duress if the downturn rolls on.

“Do what’s necessary to ride this out.”

There is a fine line between protecting yourself and ruining a long-standing strategy.

Whether you are rebalancing a portfolio, adding alternative investments designed to be less tied to the stock market in troubled times, simply diversifying into asset classes you don’t hold, check to see whether you are sticking with a plan or jumping from one to the next.

In times like these, investors disguise a lot of short-term market timing as “improvements” or “additions” to a strategy.

It’s not that all moves made under these kinds of conditions will turn out badly, but make sure that you understand why you didn’t take on these moves during the market’s headier times, when you could have made any moves you wanted — taken on any strategy or personal policy — without today’s stress.

If you eschewed a strategy in the past, it might not be “the right thing to do” now, just because market conditions have changed.

If you are diversified, if you’re earning cash on your investments through dividends and income, and if you have a plan, see if you pass a reality check without pandering to your emotions by making changes now.