Bear-market tips for retirees: Stay invested, buy dividend stocks, and bank online.

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As US stock markets turn bearish, investors should stay invested and try not to time the market.

Johannes Eisele/AFP via Getty Images

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Will the bear market affect retirees more than younger investors? Not necessarily, experts say, because the average bear market duration is measured in months, and retirees who are able to stay the course should be able to recoup losses.

It takes an average of 14 months for stocks to break even again during a “garden variety” bear market, said Sam Stovall, chief investment strategist at CFRA Research. However, if this is shaped like a bear market moving average, the S&P 500 will fall 27% in early October, bottom and then break out into February 2024. Even in the deepest bear markets, it takes about five years for stocks to bounce back. Break even, Stovall said.

Result? “If you don’t think it’s going to be 1929 again, I’d 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, the big concern for investors is that the central bank, which meets on Tuesday and Wednesday, could push the economy into recession as it aggressively raises interest rates to tame inflation. The stock market declines about five months before the recession ends, and we won’t know we’re officially in a recession until it’s already underway. Stovall said the National Bureau of Economic Research typically retroactively labels the stock bearish as bearish, such as when the stock bottoms, so the call acts as a kind of contrarian buy signal.

Staying on your feet amid market volatility can be difficult. So when you feel the need to do something, make a stock wish list, Stovall said. He said income-seeking retirees should think more like landlords than businesspeople. In other words, you want to own businesses that can pay rent (dividends, in this analogy) on time and that rents can increase seasonally. Dividends paid to CFRA analysts 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). .

Getting your money out of stocks can give you a sense of security in the short term. The problem is, you probably won’t be back in the market in time. According to a study by JPMorgan Asset Management, the 10 best days over a 20-year period result in a reduction in annual returns that is about half that of staying invested and trying not to time the market. Investors may be surprised to learn that over this period, the market’s best days coincide with its worst days within a fortnight.

In the meantime, investors of all ages should take advantage of rising interest rates and have cash on hand. “The only free lunch in finance is the opportunity to earn additional returns without taking on additional risk,” said Greg McBride, chief financial analyst at Bankrate.com.

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

Lucas Kulma, a financial advisor at Denver-based Moneta Group, manages the immediate expenses of his clients in retirement in a high-yield savings account. He holds the money in bonds for his medium-term needs, with expenditures ranging from four to eight years. He builds the bond ladder with municipal bonds in taxable accounts and corporate bonds in tax-deferred accounts, using tiered maturities as short as six months to take advantage of rising interest rates.

Kulma also likes Series I savings bonds, which currently offer a 9.62% yield. You can buy up to $10,000 in I-Bonds each calendar year (so a couple can buy $20,000). They can’t be redeemed within 12 months of a purchase without penalty, Kulma said, and that relative lack of liquidity means they’re in customers’ intermediate-term bond buckets, not the cash bucket.

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