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Advice for retirees in the bear market: stay invested. Buy dividend stocks. Online bank.

With US stock markets falling into bearish territory, investors should stay invested and not try to time the market.

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Will the bear market inflict a bigger bite on retirees than on young investors? Not necessarily, experts say, because the length of the average bear market is measured in months and retirees who are able to stay the course should be able to recoup their losses.

It takes an average of 14 months for stocks to break even during a “garden variety” bear market, said Sam Stovall, chief investment strategist for CFRA Research. If this bear market turns average, then the S&P 500 would fall 27%, bottom in early October, then break even in February 2024. Even the deepest of bear markets takes about five years for stocks to come back. to breakeven, Stovall said.

The result ? “Unless you think it will be 1929 again, I would say stay the course,” Stovall said, referring to the October stock market crash of that year and the start of the Great Depression.

For now, however, investors’ big worry is that the central bank, which meets on Tuesday and Wednesday, could tip the economy into a recession as it aggressively raises interest rates to tame inflation. . The stock market tends to bottom out about five months before a recession ends, and we won’t know we’re officially in a recession until it’s already underway. The National Bureau of Economic Research typically calls a recession back to around the time stocks bottomed, so that call serves as a sort of contrarian buy signal, Stovall said.

It can be hard to sit idly by amid market volatility, so if you feel the urge to do something, consider making a stock wishlist, Stovall said. Income-focused retirees should think more like owners than traders, he said. In other words, you want to own businesses that can pay rent (dividends, in this analogy) on time and withstand rent increases. Dividend payers that CFRA analysts like in this environment include Advance Auto Parts (ticker: AAP), Omnicom Group (OMC), Ralph Lauren (RL), BlackRock (BLK), Fifth Third Bancorp (FITB) and Morgan Stanley ( MS).

Withdrawing your money from stocks could make you feel safe in the short term. The problem is that you are unlikely to get back to the market in time. Over a 20-year period, missing the 10 best days results in annualized returns that are about half of what you would have gotten if you had stayed invested and not tried to time the market, according to research by JP Morgan Asset Management. Investors might be surprised to learn that during this period, the best market days tend to fall within two weeks of the worst days.

Meanwhile, investors of all ages should take advantage of rising interest rates and put their cash to good use. “The only free lunch in finance is the ability to earn extra return without taking on extra risk,” said Greg McBride, chief financial analyst for Bankrate.com.

One way to do that today, he said, is to transfer your savings from a large brick-and-mortar bank that pays around 0.01% interest to an online bank. Online banks are starting to offer more competitive rates on their high yield savings accounts. For example, Ally offers an annual percentage return of 0.90% and Marcus offers 0.85%. Rates will likely continue to rise and could hit 2% by the year, McBride said.

Lucas Kulma, a financial advisor at Moneta Group in Denver, keeps the immediate spending needs of his retired clients in a high-yield savings account. He keeps the money for their medium-term needs, between four and eight years of spending, in the form of bonds. It constructs bond ladders with municipal bonds in taxable accounts and corporate bonds in tax-deferred accounts, using laddered maturities as short as six months to take advantage of rising interest rates.

Kulma also likes Series I Savings Bonds, which currently yield 9.62%. You can buy up to $10,000 in I Bonds each calendar year (so a couple can buy $20,000). They cannot be cashed in within 12 months of purchase without penalty, and this relative lack of liquidity means they fall into the medium-term customer bond category, not the cash category, Kulma said. .

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