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  • Writer's pictureHolzberg Wealth Management

How to Invest in a Bear Market.

HWM Market Recap - November 2022

Holzberg Wealth Management Newsletter
Executive Market Summary

Investing can be scary. Particularly in volatile times like these. After a down month in September, the Dow Jones Industrial Average (DJIA) had its best rally for October in recorded history (since 1896). All the while, the DJIA is still down more than 8.5% since January, and the S&P 500 is down more than 18.75% in the same period. The economy sent further mixed signals with a 2.6% rise in third-quarter Gross Domestic Product (GDP) after declining the first two quarters of the year. Meanwhile, the manufacturing sector is headed into recession, Core Consumer Price Inflation is at a forty-year high, and home sales fell to their fourth lowest reading on record as mortgage interest rates more than doubled since the start of the year.

So, how does one invest during a bear market? Moreover, what should one do during tumultuous times like these if they are retired and living off returns from investments?

When it comes to investing, investors are compensated to take on risk -- the lower the risk, the lower the expected return; the higher the risk, the higher the expected return. Consequently, our shorter-term investments should be in lower-risk assets to meet current needs and protect from short-term volatility. In contrast, longer-term investments should take on more risk allowing them the time to benefit from the additional risk. Therefore, to start, allocate your retirement funds into short (1-2 years), intermediate (2-5 years), and long-term (5+ years) investments.

For the short term, you should have enough low-risk money to pay your expenses for about a year or two. This money can be in the form of an income stream, cash, or cash equivalents (certificates of deposit (CDs), treasuries, money market). Once you know your average monthly expense requirements, you determine your income (Pensions, Social Security, dividends, interest) and supplement that with enough low-risk assets to safely meet your needs for the coming year or two. A reasonable withdrawal rate to work with is 4%, which is approximately the same as the Required Minimum Distribution (RMD) for retirement accounts.

Next, you will have low to moderate-risk assets that generate income and capital gains to meet your needs for the next two to five years. The idea is to manage the portfolio’s risk so that regardless of short to intermediate-term market fluctuations, your cash flow needs are met without being forced to sell long-term assets at an inopportune time because the stock market is going down.

Long-term investments that you do not expect to sell for at least five years can generate dividends or interest that flow into your short-term assets. In addition, as you sell or trim positions, those funds can be reinvested or moved into shorter-term assets. By systematically employing this strategy, you will have the funds required to meet your expenses while keeping other funds invested to take advantage of long-term rates of return.

In addition to proper portfolio construction, establishing a financial plan can create a beneficial blueprint to help systematically monitor cash flows, ensure that you remain on track, and adjust for any changes in your circumstances or the financial markets. For example, by reviewing your plan annually, you can determine if you have excess funds or shortfalls and need to tighten your budget. The idea is to maintain an analytical and reasoned approach to your retirement finances. It is human nature to feel like everything is great during strong up markets and to worry when markets decline. By doing the analytical work up front, it gives us a jumping-off point to make careful, well-thought-out decisions during tricky times. Additionally, in structuring portfolios according to your needs and preferences, routinely monitoring their progress, and adjusting systematically or as circumstances warrant, we can better stay on track to help you feel more at ease about retirement despite the ups and downs of the market.

Change is the one constant. By having a road map and steering a charted course, you will be better prepared to manage inevitable changes that will come your way.

Markets Overview

Monthly Changes in Major Indices

  • S&P 500: +7.99%

  • Dow Jones Industrial Average: +14.05%

  • Nasdaq Composite: +3.90%

Monthly Performance By Sector

  1. Energy (XLE) +24.96%

  2. Industrials (XLI) +13.92%

  3. Financials (XLF) +11.96%

  4. Health Care (XLV) +9.68%

  5. Materials (XLB) +8.99%

  6. Consumer Staples (XLP) +8.99%

  7. Technology (XLK) +7.68%

  8. Utilities (XLU) +2.04%

  9. Consumer Discretionary (XLY) +1.10%

  10. Real Estate (XLRE) +0.43%

  11. Communication Services (XLC) -1.34%

Monthly Top 5 Performers

Energy (XLE) +24.96%

Energy was back in the top spot as the best-performing sector for October. Its leaders included: Halliburton Co (+47.93%), SLB (+44.93%), Marathon Oil Corp (+34.85%), APA Corp (+33.69%), and Baker Hughes Co Class A (+31.97%).

Industrials (XLI) +13.92%

Industrials finished the month as the second-best performing sector, with its leaders being: Caterpillar Inc (+32.65%), United Airlines Holdings Inc (+32.43%), Lockheed Martin Corp (+25.99%), General Electric Co (+25.68%), and Honeywell International Inc (+22.19%).

Financials (XLF) +11.96%

Financials fell one spot month-over-month to the third-best performing sector. Leaders in the sector were: Synchrony Financial (+26.96%), Lincoln National Corp (+23.71%), Everest Re Group Ltd (+22.95%), Ameriprise Financial Inc (+22.69%), and Prudential Financial Inc (+22.63%).

Health Care (XLV) +9.68%

Health Care dropped from the best-performing sector in September to the fourth-best performing. Leading the sector in October included: DexCom Inc (+49.96%), Intuitive Surgical Inc (+31.49%), Universal Health Services Inc Class B (+31.40%), Gilead Sciences Inc (+27.18%), and Moderna Inc (+27.13%).

Materials (XLB) +8.99%

Leading the fifth-best performing sector in October were: Nucor Corp (+22.80%), Freeport-McMoRan Inc (+16.50%), Corteva Inc (+14.33%), DuPont de Nemours Inc (+13.49%), and FMC Corp (+12.49%).

Political Events Influencing the Economy
  • The IRS released the increased contribution limits to tax-advantaged accounts, including 401(k)s, which for 2023 increased by a record 9.8% because of inflation. It's the most significant jump ever in terms of both percentage and dollar amount, according to the WSJ. The increases included:

    • 401(k), 403(b), and 457(b) Plans: $22,500 if you are under age 50 (up from $20,500 in 2022). If you are 50 or older, you can contribute an additional $7,500 in 2023 (up from $6,500 in 2022) for a total limit of $30,000.

    • IRAs and Roth IRAs: $6,500 if you are under age 50 (up from $6,000 in 2022), $7,500 if you are 50 or older. Income-based contribution limits may apply.

    • Defined Benefit Plans (i.e., pensions): Annual benefit limit is $265,000 for 2023, up from $245,000 in 2022.

    • Solo 401(k)s and SEP Plans: $66,000 in 2023, up from $61,000 in 2022. If you are 50 or older, you can contribute an additional $7,500 in 2023 (up from $6,500 in 2022).

    • Health Savings Accounts (HSAs): $3,850 for individual coverage for those with self-only High Deductible Health Plans (HDHPs), up from $3,650 in 2022, and $7,750 for those with family HDHPs, up from $7,300 in 2022.

  • Additionally, tax brackets will get a 7% bump for 2023. The highest income tax rate (37%) will now apply to individual single taxpayers earning $578,125 or more ($693,750 for married couples filing jointly), up from $539,900 ($647,850 for married couples) for 2022. With regards to the new standard deduction, married couples filing jointly can claim a standard tax deduction of $27,700 for 2023, up from $25,900. For single filers, it will increase to $13,850 from $12,950.

  • Social Security checks for 2023 will also see a substantial increase, up 8.7%, marking the largest cost-of-living adjustment for the program since 1981. On average, recipients' benefits will increase by more than $140 per month starting next year. Additionally, Medicare Part B premiums will decrease by $5.20, or 3.1%, per month.

  • President Biden unveiled a plan to sell 15 million barrels of oil from the U.S. strategic reserve to keep oil and gas prices from rising. This unusual move follows a decision by OPEC+ nations to cut oil production.

    • October also saw a wave of protests across Europe as tens of thousands of people marched in opposition to high inflation, particularly the price of energy. In a recent interview, Jamie Dimon, the CEO of JP Morgan Chase, voiced his concerns about the current energy shortage and its implications for world peace and prosperity: "America should have been pumping more oil and gas… We should've gotten that right starting in March at the start of the Russian invasion of Ukraine. Obviously, America needs to play a real leadership role – America is the swing producer, not Saudi Arabia... I would put it in the critical category. This should be treated almost as a matter of war at this point, nothing short of that. It's Pearl Harbor, it's Czechoslovakia, and it's really an attack on the Western world. We still need renewable fuels, and there are long-run climate issues that need to be tackled by perhaps technology. This is a chance to get our act together and to solidify the Western, free, democratic, capitalist, free people, free movements, freedom of speech, free religion for the next century."

  • As of October 27th, the average 30-year fixed-rate mortgage rate was 7.08%, according to Freddie Mac. Mortgage rates have increased almost every week since late August and have more than doubled since the beginning of 2022.

  • According to Bloomberg, California's gross domestic product (GDP) is poised to top Germany's to become the fourth largest in the world, after the U.S., China, and Japan.

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About the Author

Holzberg Wealth Management is a family-owned and operated financial planning and investment management firm based in Marin County, CA. As your financial advisors, we serve you as a fiduciary and are fee-only, so we never receive commissions of any kind. We help individuals and families like you in the greater San Francisco Bay Area and virtually nationwide with the financial decision-making process to organize, grow, and protect your assets.

** This writing is for informational purposes only. The author and Holzberg Wealth Management do not guarantee or otherwise promise any results that may be obtained from using this report. No reader should make any investment decision without first consulting their financial advisor and conducting their own research and due diligence. These commentaries, analyses, opinions, and recommendations represent the personal and subjective views of the author and do not constitute a recommendation, offer, or solicitation to make any securities transaction. The information provided in this report is obtained from sources that the author believes to be reliable. External links to third parties are being provided for informational purposes only. Holzberg Wealth Management is not affiliated with the third-party websites linked to, unless otherwise explicitly stated, and does not constitute an endorsement or approval by Holzberg Wealth Management of any of the third party’s products, services, or opinions.


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