The market has not been comforting in 2022.

It can be panic-inducing to check your account balances and finances during a bear market, watch graphs of market movements, and compare percentages.

You probably have heard phrases such as “stay the course,” and reminders that your investments and your financial plan take a long-term view.

You know it requires patience, calm, and in a sense, putting blinders on to help your finances weather through the market volatility.

We know that logically, and we all try to focus on those traits. However, for many of us, doing something will help us focus more on the long-term. It’s hard not to be reactive, so in a time like this, how can we be proactive so our investments are positioned better when the markets begin to improve?

Liquidating

First we need to address what not to do.

It can be tempting to liquidate assets during an economic downturn. One reason is certainly because it makes us feel safer with more cash on hand should we need it. It can also be tempting to pull dollars out of the markets because we feel we don’t know what will happen in the future, and we might be safer to protect our finances from negative market trends.

However, doing so can have several consequences that could be harmful to our financial state:

• Missing out on market increases, which can often restore and improve investment portfolios
• Losing out on the diversification, helping to keep our financial picture balanced
• Negative tax consequences by removing money from the markets, which could trigger a capital gain

Spending and Cash Needs 

Sometimes, to avoid liquidating investments, it’s not just a matter of stalling a knee-jerk reaction of removing funds from volatile markets, it’s also an intentional financial direction to help keep your spending healthy.

It is important to evaluate your spending and cash needs.

One clear way to think about spending is by dividing expenses into non-discretionary and discretionary spending buckets.

The non-discretionary expenses are items such as mortgage payments, rents, utilities, insurances, healthcare, food, etc. These are bills and purchases we all simply need to make in our daily lives.

We all have discretionary spending as well, and in times like this it is important to evaluate whether you can delay some expenses or consider if they are necessary for your bear market finances. It’s often in less-than-confident markets when many of us reconsider discretionary spending items.

Discretionary Spending – Options to Slim or Remove

1. Buying a new car when the one you own is working and does not require major maintenance or repairs. Cars are in short supply and the prices have increased significantly. In some cases, there are bidding wars taking place on car lots.

2. If you have a car on lease and the agreement is about to end, it may be advisable to view the buyout provisions of the lease. The terms for purchase of the leased car would have been set in prior years before inflation was a large factor. The price may be very competitive based on current car prices – even compared to used car markets.

3. Vacations may be an area where you may consider taking trips closer to home to save funds. This one is hard as many of us have been confined due to the COVID restrictions and for mental health reasons want to venture out. A delicate balance but certainly an area of discretionary spending where you can review and decide.

4. Home improvements or updates may be another source of discretionary spending. You had planned to add a screened porch, inground pool, update bathrooms and kitchens. These are generally decisions where delaying the projects may allow you to keep your portfolio intact to recover more fully when the markets return. We also know that building materials and labor costs have escalated significantly. Finding a contractor who can do the work is another large challenge. Due to demand the prices may be more inflated than you want to pay right now.

5. Electric and energy costs have increased significantly and, in many cases, more than the current inflation rates. Evaluate the various energy providers to find the one with the lowest prices and lock in for a period of time. Sometimes you can lock in a year or two depending on the provider.

6. Consider your entertainment budget. We all need to spend time enjoying life and spending time with family and friends. What is your budget for this? Do you eat out several times a week with friends?  Entertainment may even include cable TV. If you have not checked with your provider to ask for a concession or reduced rate, it may be worth the call to ask the question or to look at other options that may be less expensive.

7. There are many other discretionary expenses all of us have every month. Look at all of your spending to decide what is discretionary and perhaps can be adjusted for a period of time until the economy and markets improve.

Please note that many of these expenses have also been affected by the large levels of inflation that we have been experiencing.

Thinking About Spending

Running your household spending is like running a business. When the economy is healthy, revenue is increasing, and markets are growing, this means a business can make more favorable discretionary spending decisions. This may include profit share bonus amounts paid to team members, capital improvements in offices, team member gatherings with entertainment that is representative of more positive economic times, client entertainment events and swag, etc. When the economy isn’t as rosy, businesses re-evaluate some of their spending, whether business travel to a conference that could be attended virtually, project expansion, and team entertainment and gatherings.

We all should consider looking at our household budgets in a similar manner to running a business for bear market finances.  Spending less will allow you to take less – or none at all – from your portfolio during these volatile periods. Especially for those of us already in retirement and withdrawing from your portfolios, taking a look at spending can be very helpful.

For those of us who are employed and adding to our retirement goals and accounts, reducing discretionary spending may allow you to invest more funds while the stock prices are lower. In a few years we should look back at this downturn and realize that the valuations were attractive if you can be a buyer and add more to your retirement nest egg during these times.

It can be challenging to move beyond the emotions evoked by an intense economic situation, but considering spending, saving, and market positions can help us all move confidently into our financial future. If you would like to have a conversation with a wealth advisor to help you take the next steps forward with your bear market finances, we’re happy to start a conversation anytime. Give us a call at 855-855-5455 or email [email protected].