The Accumulator's Guide to a Bear Market

Shane C. Murphy, MBA, CMT®

Oct 15, 2022

Accumulator, noun (ac·cu·mu·la·tor)

definition: An individual or family, with a focus on paying down debt, growing long-term savings, and improving the household balance sheet.

Financial wellness is a priority for the accumulator. They want to save, invest and be well positioned for retirement. The accumulator’s time horizon can be anywhere from 10 to 40 years. They are time millionaires, eager to do the next right thing and build wealth for their future self and family.

With both stocks and bonds in their own respective bear market, you may be asking yourself, what should I do? Do I ride out this volatility and pretend it doesn’t bother me? My time horizon is long, but this is still uncomfortable - what should I do?

Let’s make it simple. Below are 3 things an accumulator can focus on in a bear market. 3 things to get your hands on and work out following a volatile year in the financial markets.

1) Short-term Savings

Your short-term savings are monies earmarked to cover expenses 0-2 years out. Whether it’s purchasing new furniture, a down payment on a home, a special trip etc. This money is preferred to be kept in a FDIC insured bank account - now finally earning interest, but more importantly free of the risk associated with the stock or bond market. Accumulators can ask themselves the following questions:

Is this savings bucket overfilled?
Can money be redirected from this bucket and into long-term savings?
Is it necessary to increase the size of this bucket because a new short-term expense/goal was added in 2022?

All of the above are great questions to review with your financial planner. Controlling what you can control; this includes determining how much liquid cash is needed versus how much is currently available.

Now, stock valuations are lower which implies that in theory, future stock returns should be higher. Buy low sell high. Simple, right? LOL I wish! Even if you believe this to be a more attractive environment for long-term stock buyers (we sure do), it doesn’t mean you drain your short-term savings in order to capitalize on it. If you want to buy more stocks in a down market, the first place to look is your employer sponsored or individual retirement accounts.

2) Retirement Contribution Strategy

We’re nearing the end of the year - if you are contributing to an employer retirement plan or an individual retirement account, now is a great time to review your contribution strategy.

Are you in a position to increase your % salary deferral going into year-end? If you plan to increase your salary deferral next year, is now an even better time to make the change? How far away am I from reaching the contribution limit? How can I invest more and where is the best place to do it?

Contribution strategy questions are tied to cash flow. It’s important to understand how adjustments can impact cash flow and the ability to achieve other savings / financial planning goals. It never hurts to run questions by your financial planner! It’s also worth noting, contribution types are an important part of the strategy. Reviewing your current contribution type e.g. Roth vs. pre-tax, with both your advisor and tax preparer is equally important!

3) Zoom Out

Last but not least, zoom out and focus on the long-term. I know, you’ve heard this a million times, but it is so important. A mentor of mine would say, “When in doubt, Zoom out.” When short-term performance begin to cause anxiety or stress, zoom out and review the long-term performance. Below is a chart outlining the short-term (YTD and 12-month) returns, next to long-term (3, 5, 10 and 15 year returns). The stock market does not appreciate by way of a straight line. Volatility, both to the upside and downside is the price an investor pays for return well above the risk-free rate! During volatile times, it is important we remind ourselves of this fact.

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