Lemons to Lemonade

Mike Zaccardi

MORE WEALTH HAS been lost in this year’s stock and bond market decline than in any previous downturn, according to research firm Bespoke Investments. And, no, that doesn’t include the $2 trillion of crypto value that’s gone up in smoke.

A counterpoint to this jarring reality: Folks today are wealthier than during previous bear markets. Goldman Sachs reports that U.S. household net worth as a percentage of disposable personal income remains sharply above pre-pandemic levels. This metric is also above where it stood at any time from 1960 through 2020.

All this isn’t as contradictory as it might seem: More wealth means our losses have a larger dollar value. If you’re like me, a 20% or so hit to your stock funds feels bigger than ever—even bigger than during the larger percentage declines experienced in 2008. That’s simply because of bigger portfolio values this go-around.

My advice: Stop focusing on your losses—and ponder how to position yourself for the eventual market recovery. Rebalance your portfolio. Consider a Roth conversion so future gains will be tax-free. Take tax losses and move the proceeds into better-diversified, lower-cost investments.

Also increase your monthly savings. For instance, you might boost your 401(k) contribution percentage. Upping your retirement plan savings from, say, 6% of income to 10% means you’ll buy more shares during this dip, but it likely won’t feel like a big loss to your paycheck. Indeed, if you find that it isn’t a strain on your finances, persisting with that higher savings rate will lead to a much bigger net worth over time.

What’s unique about 2022’s bear market is that, so far, unemployment remains exceptionally low, and consumers are still flush with more than $2 trillion of excess cash, according to Goldman Sachs. That means many households, while frustrated by high gas and food prices, are well positioned financially to meet the rising cost of living. They can also put more of that cash to work in attractively priced U.S. stocks and bonds, as well as cheap international markets.

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