Play dead in bear market, say financial advisers

Investing isn’t for the squeamish these days, and bear stock markets never are easy to endure. In a bear market, stock prices are falling or are expected to fall even though they may be interrupted by some short intervals of higher prices. On the other hand, a bull market is a period of optimism in the stock market, when prices are rising or are expected to rise.

Many investors respond emotionally during bear market downturns and feel they have to “do something” even if it turns out wrong. Not the best strategy. The best action may be to ride things out by evaluating a proper risk tolerance and establishing an appropriate asset allocation policy. But often that’s easier said than done, especially in a bear market.

Losses to IRAs, 401(k)s and mutual funds have impacted the plans and dreams that many have had for early retirement — or just plain adequate retirement. Investments for the kid’s college costs have dwindled, and some face the prospect of shifting gears from retiring with an adequate income to having to work until they are 70 or older. Most of us know that some sort of revision in our plans is ­needed but many simply don’t know what to do.

Bear markets aren’t predictable either, but you can’t just hold your jacket out and stand on tiptoe and solve your situation. Ultimately, much like encountering the wildlife bear, you’ll simply have to “use your own judgment and act accordingly.” However, if you are wary of the bear market, keep in mind that the United States continues to have the strongest, largest and most prosperous economy in the world. Focus on long-term strategy and stick to it.

If you focus on short-term forecasts, your emotions might tempt you to act counter to your strategy. Resist the appeal to react to short-term fluctuations; however, if you must react, do so only in very small measure. No one can guarantee future performance, but the likelihood is that the markets will rebound.

Older investors who rely on markets to provide retirement income should spend time carefully validating their asset mixes and diversification and then make any appropriate adjustments on that basis.

On the other hand, younger investors should consider putting money aside for the long term and staying focused on their plans. When prices are low, more stock can be bought for less money. Eventually the markets will stabilize and resume their upward movement, and today’s investor will likely come out ahead.

The Honorable Jonathan Miller, treasurer of the Commonwealth of Kentucky, recently gave testimony at a U.S. Senate hearing about the problem of financial illiteracy.

“When a growing number of individuals — particularly the poor, elderly and minority groups — fall victim to the scams of predatory lending, we realize that financial illiter­acy leaves many Americans vulnerable to the loss of their homes or retirement savings. And when the total household debt reaches $7.3 trillion, with an average [household that carries a credit card balance] having over $8,000 in debt, we realize that financial illiteracy has a devastating effect on our nation’s econ­omy.”

Whether you’re in the younger or older category, the blessings of debt freedom extend beyond finances to the spiritual and marital realms as well. No one who is financially bound can be spiritually free, and the effect of financial bondage on marriage relationships is measurable in the statistics of failed marriages.

Therefore, God’s people need to make debt freedom and saving money top priorities. During difficult financial times it’s more important than ever to understand and abide by biblical principles to help save money and not waste it:

-Continue giving. When we recognize that God owns everything and all blessings come from Him, our role as good managers or stewards means giving back to God a portion of what he has entrusted to us. Giving is an external testimony that we believe God owns both the material and spiritual things of our lives and that He is the source of all our supply.

-Remember that small savings grow. Save at least 5 percent (preferably 10 percent) of your income in a money market or interest-bearing savings account. Even small amounts will accumulate, so set a savings goal to have three- to six-months’ income set aside.        

(BP)