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With stock market in downturn, experts say it may be time to review your portfolio | News

CADILLAC — Wall Street last year ended on its lowest note since 2008 — a downturn experts believe could portend a rocky 2023.

Bear markets can be a risky time to invest, particularly for those who are nearing retirement age.

For those with more time at their disposal, however, downturns in the stock market can present opportunities for growth.

It all depends on the investor, what their goals are, and where they are in their life.

Ryan Cicchelli, owner of Generations Insurance and Financial Services in Cadillac, said three long-term trends characterize the history of the stock market: The first is that it continues to grow; the second is that every year there is a “correction” in the market — typically in the fourth quarter; and the third is that every seven to 10 years, there is a downturn in the economy that lasts an average of 12 to 24 months.

To name a few downturns in recent memory: in 2008, the market crashed as a result of widespread defaults on mortgage-backed securities; in 2000, the market crashed when the Dot.com bubble burst; and in 1989, the market crashed on “Black Monday,” believed to be caused by reaction to a news story.

Things were going well in 2019, which in June saw the market reach one of its highest points in decades, capping one of the longest bull markets in U.S. history. What no expert could have predicted, however, was the COVID-19 pandemic, which in March 2020 sent stocks plummeting virtually overnight.

To slow the economic free-fall, the federal government approved a series of stimulus packages and through 2021, Cicchelli said the market was riding on the back of this cash infusion.

The stimulus packages were only a Bandaid, however, and Cicchelli said the chickens eventually came home to roost in 2022, when the Federal Reserve increased interest rates to put a check on rising inflation. Home foreclosures were up in 2022, and delinquent car loans skyrocketed.

During down markets, Cicchelli said something he likes to do with certain clients is “hedging the downside,” which is adjusting their portfolios to prepare for a worst-case scenario and ensure they don’t lose their nest egg.

Sitting down with your financial professional now is particularly important, Cicchelli said, because over the last couple of years, they may have been making small changes to your portfolio to capitalize on the bull market. Now that the market is on the downslide, it may be time to recalibrate your strategy.

“Control what you can control,” concurred Amy Schmid, financial advisor with Edward Jones Investments, in Cadillac. “Make sure your portfolio is diversified in line with your risk tolerance and your life stage.”

Schmid said throughout the history of the stock market, bear markets have been followed by longer-lasting bull markets. For those on a limited time horizon, right now is a time to be cautious and risk-averse. But for those who can afford to wait out the bear market, a more aggressive strategy may lead to big rewards in the long term.

“We think a recession would be mild compared to history, especially the downturns in 2008, 1981 and 1974,” reads an Edward Jones 2023 outlook. “We expect a new economic expansion to take shape in the second half of 2023, ushered in by falling inflation and the end of the Fed’s tightening campaign … We think this highlights the forward-looking nature of the financial markets and supports the case for opportunistic investing in 2023.”

During bear markets, Schmid said stocks cost less, but dividends continue to pay out and reinvest; once the market picks up again, the investor will own more stocks, which at that time will be worth more than when they were originally purchased.

Since every person’s situation is completely unique, however, Schmid said it’s difficult to generalize about what every investor should be doing right now.

Schmid said identifying your goals at whatever stage of life you’re in is a crucial first step. Next is to articulate those goals as clearly as possible to your financial advisor so they can help you decide on a proper course of action in 2023.

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