MONEY MATTERS

money matters BY CAROL LEONETTI DANNHAUSER

NO PICNIC PREPARING FOR ANOTHER NOT-SO-SWEET BEAR MARKET

Ed Laux

After years of soaring up, up and away, the stock market plunged back to Earth in 2022, taking with it trillions of dollars in retirement savings, college funds and more. At various points in the year, the Nasdaq had tumbled more than 30 percent from previous highs; the S&P 500 more than 20 percent— in other words, into a bear market, which is loosely defined as when the stock market index sinks more than 20 percent from a recent high.

“Three main drivers have upended the way people have

Though younger investors haven’t experienced a bear market beyond the months-long, Covidinduced market drop in 2020, bear markets are not that unusual. Research counts more than twenty since 1928, or one about every five years or so. Market free falls happen in a hurry, and as the numbers fall, risk and fear rise. Each bear market has recovered, and grown to new heights, but over time. That’s little consolation to people nearing retirement or parents counting on investments to cover tuition payments. The bear market that began in 2022 is a little bit different from those in the past, Laux notes. It wasn’t an economic crisis, like the dotcom bust in 2001 or the mortgage crisis in 2008, that drove the downturn. Instead, this stemmed from the Federal Reserve’s deliberate attempts to cool the economy by raising interest rates. The fear of slimmer corporate profits “caused a lot of people to sit back. They haven’t

thought about investments for the past forty years or so,” says Ed Laux, assistant vice president and financial advisor with Merrill Lynch Wealth Management in Greenwich. “Interest rates have gone up considerably, the dollar has had a major move to the upside, and we’ve also had higher inflationary numbers.” That trifecta has “caused a lot of reticence on the part of people who have had success on buying the dip,” Laux says. “Whether you think back to the crash in 1987, or you think back to a couple of years ago when we went down over 30 percent in one month, those turned out to be pretty good buying opportunities.” Not that you should embark on a buying spree. Instead, perhaps welcome 2023 by examining your asset allocation and understanding the risks and vulnerabilities attached to your investments, so that when the bear is growling, you’re prepared. been jumping in with a lot of verve like they had in the past.” While Laux remains a “big believer in staying invested in the market,” he adds a caveat: “People should be tweaking their plans. It’s important for them to determine investment choices that are in their best interest depending on where they are in life. A thirtyfive-year-old is going to have a lot different mindset than a seventyyear-old. The younger people have a longer time frame to be aggressive, and for long-term trends, equities are a great place to be.”

Many investors have a “set it and forget it” mentality, with contributions to investment accounts and retirement accounts happening on cruise control. Whether you’re a DIY investor or you work with an advisor, you might want to revisit and refresh your financial plan, shoring up your strategies. “That’s good advice every year, whether you’re in a bull market or a bear market,” says Laux.

SUDDENLY INTERESTING

While there’s a whole lot of pain associated with raised interest rates, there’s also a bright side: Municipal bonds, CDs, money market funds, Treasury bonds and other income-generating investments that have languished over the past couple of years are finally paying more for your money. And don’t forget that old reliable place to stash cash you’ll be needing shortly—the credit union. Fairfield County counts more than three dozen credit union branches, many of which are open to the general public, most of which pay higher interest rates on their CDs and money market accounts than neighboring banks do.