Investment
How to invest during a bear market, according to investment advisors – Yahoo Finance
There’s a “hurricane” coming for the U.S. economy, and investors should brace themselves for more volatility.
At least that’s what JPMorgan Chase CEO Jamie Dimon said earlier this month at an annual conference sponsored by AllianceBernstein. Dimon, often considered the voice of the banking industry, is just one of many Wall Street titans painting a less-than-rosy economic picture.
From hedge fund billionaire Leon Cooperman to Morgan Stanley’s CEO James Gorman, bearish predictions about a continued economic downturn, or even an outright recession, have flooded headlines in recent months.
That’s not exactly surprising given the macroeconomic woes facing the nation. Rising consumer prices continue to be a thorn in the side of the Federal Reserve, with inflation hitting a fresh four-decade high in May despite multiple interest rate hikes. The war in Ukraine is wreaking havoc on global commodities markets, pushing the prices of food and fuel to unsustainable levels worldwide. And now, there are worrying signs of a slowdown in U.S. consumer spending, after retail sales unexpectedly fell last month.
All of these bearish economic indicators and recession predictions have consumers and economists spooked, too. More than 80% of Americans believe a recession will hit this year, and 70% of leading economists polled by the Financial Times last week said they expect a recession by the end of 2023.
On top of that, the S&P 500 is now down more than 23% since the start of the year after officially entering a bear market this week.
For stock market investors, these are trying times, to say the least. But it’s important to remember that bear markets aren’t the end of the world. In fact, they’re a normal part of how the stock market operates.
From the end of World War II through last year, the S&P 500 has experienced 14 official bear markets, or one every 5.4 years on average. The most successful investors understand that bear markets can be navigated without panic, and may even present opportunities.
Here’s what several top investment advisors and wealth managers recommend investors do to avoid major losses and make it through this year’s bear market.
Stick to a long-term investment plan that fits your goals
The first and most important tip for any investor looking to weather a bear market is to stick to a long-term investment plan.
“Assuming that a client has a well-thought-out investment plan that is consistent with their goals, objectives, time horizon, and risk tolerance, they should stay the course,” Gerald Goldberg, CEO and co-founder of the investment advisor GYL Financial Synergies, told Fortune.
Consistent doom and gloom headlines are common during bear markets, but seasoned investors understand that it’s important to ignore the noise and focus on long-term returns.
Over the past decade, barring brief blips in 2020 and 2018, finding successful stock market investments wasn’t exactly a challenge. After all, the S&P 500’s average annual returns over the past decade, not including 2022, were roughly 14.7%. That’s led many younger investors to become undisciplined in their approach to investing.
Instead of focusing on long-term goals like retirement, building up enough money for a down payment on a home, or paying for kids’ education, these short-term focused traders often want to quickly change strategies amid a bear market, hoping to “protect their portfolios” or maximize profits.
But the reality is, if a bear market has already begun, it may be too late to change your asset allocation without locking in serious losses. Remember, the tech-heavy Nasdaq is already down 32% this year alone.
Financial advisors recommend investors trust that their financial strategy will work over the long-term as it was intended.
“In our view, closing the proverbial barn doors after the horses have run out, by somehow deciding that now is the time to ‘protect’ portfolios, is part of the reason that so many investors end up with mediocre long-term returns,” John Buckingham a portfolio manager at the investment firm Kovitz, told Fortune.
“History shows that those who have patience and discipline can mitigate the risk of permanent loss of capital (i.e. protect their money) by increasing the length of their holding period. The key, of course, is to ensure that short-term-oriented dollars [a.k.a. the money you need for expenses] are not invested, so that stocks can be held through thick and thin,” he added.
Inexperienced investors often forget their financial plans when stocks are falling, but investing shouldn’t be an emotional game.
“Avoid acting out of emotion and not logic. A knot in your stomach is not a good sell signal!” Emerson Ham III, a senior partner at the wealth management firm Sound View Wealth Advisors, told Fortune.
Avoid timing market entries and exits
Another key to bear market investing success is to avoid trying to time market entries and exits.
“Attempting to time the market is a fool’s errand,” GYL Financial Synergies’ Goldberg said. “For every investment undertaken, you need to be right not just once but twice (entry and exit).”
Goldberg noted that while the current price of a stock and its relative valuation to industry peers does matter, retail traders often make mistakes when they attempt to avoid bear markets by selling shares.
“As we like to say, the only problem with market timing is getting the timing right. Yes, some may be able to get out ahead of a downturn, but the truly difficult task is knowing when to get back in, as stocks usually begin sharp moves higher when conditions look awful,” Kovitz’s John Buckingham said.
Buckingham noted that, historically, the average investor is often the most bearish ahead of stock market rallies, making them unlikely to invest at the right time to maximize profits. That may mean it makes more sense to dollar cost average—or invest a fixed dollar amount on a regular basis regardless of the share price—into stocks with strong fundamentals, rather than timing big entries and exits.
“By our way of thinking, if there were changes to be made in an asset allocation plan, we would be steering money toward equities as stocks fall as opposed to hoping that we could have success jumping out and back into stocks,” Buckingham said.
Retail investors often believe they can outsmart the market and make a killing by moving in and out of stocks, but investment advisors say they’ve seen it all before, and timing market entries and exits rarely leads to outsized returns.
“Avoid the temptation to try to be a market timer. You already didn’t sell out at the top, so what makes you think you will have the foresight and fortitude to buy back in at the bottom?” Ham III said. “I have never seen anyone do this with enough consistency to add value over the long run. Never in my 30-plus-year career.”
Look for value, cash flow, and quality
For people who have some extra money and are looking to invest during a bear market, there are some key traits to look for. Firms with consistent cash flows, strong balance sheets, and, in this inflationary environment, pricing power, are likely to outperform.
Buckingham also recommended looking at so-called “value stocks” in the current environment.
“Historically speaking, stocks that trade for more inexpensive valuations have outperformed those that trade for richer valuations, or growth stocks, so I always think that gravitating toward the former makes sense. And that goes double for when the Fed is tightening [the money supply], and in higher interest rate and higher inflation environments,” he said.
With so many investors concerned about the economy’s future and falling earnings, it may also make sense to invest in companies that offer dividends and avoid unprofitable firms, Buckingham added.
One key tip here is to look at a firm’s dividend payout ratio, or the total amount of dividends paid to shareholders compared to that company’s net income, before making an investment. A high payout ratio can be an indicator that a company will be unable to maintain its dividend if earnings fall.
Sound View Wealth Advisors’ Ham III also recommended looking at “high-quality” companies that have consistent cash flows, make a reliable profit, and aren’t overburdened by debt.
“A wonderful piece of advice given to me early in my career was to always come out of a bear market with a higher quality portfolio than you entered it,” Ham III said. “It can be a wonderful time to buy some of those great companies that you have always wished you owned.”
Finally, it’s important not to give up on companies that have what Ham III calls “secular tailwinds” that could help propel them in the future, especially when the current bear market ends. While many investors are abandoning tech stocks, he argues it may make sense to look for quality companies in sectors that have been recently beaten down.
“In an environment like this, the market tends to throw out the bathwater, the baby, and the tub as well,” he said.
This story was originally featured on Fortune.com
Investment
Bill Morneau slams Freeland’s budget as a threat to investment, economic growth
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Finance Minister Chrystia Freeland’s predecessor Bill Morneau says there was talk of increasing the capital gains tax when he was on the job — but he resisted such a change because he feared it would discourage investment by companies and job creators.
He said Canada can expect that investment drought now, in response to a federal budget that targets high-end capital gains for a tax hike.
“This was very clearly something that, while I was there, we resisted. We resisted it for a very specific reason — we were concerned about the growth of the country,” he said at a post-budget Q&A session with KPMG, one of the country’s large accounting firms.
Morneau, who served as Prime Minister Justin Trudeau’s finance minister from 2015 to 2020 before leaving after reports of a rift, said Wednesday that Freeland’s move to hike the inclusion rate from one-half to two-thirds on capital gains over $250,000 for individuals, and on all gains for corporations and trusts, is “clearly a negative to our long-term goal, which is growth in the economy, productive growth and investments.”
Morneau said the wealthy, business owners and corporations — the people most likely to face a higher tax burden as a result of Freeland’s change — will think twice about investing in Canada because they stand to make less money on their investments.
“We’ve created a disincentive and that’s very difficult. I think we always have to recognize any measure that creates a disincentive for investment not only impacts us within the country but also impacts foreign investors that are looking at our country,” he said.
“I don’t think there’s any way to sugarcoat it. It’s a challenge. It’s probably very troubling for many investors.”
KPMG accountants on hand for Morneau’s remarks said they’ve already received calls from some clients worried about how the capital gains change will affect their investments.
Praise from progressives
While Freeland’s move to tax the well-off to pay for new spending is catching heat from wealthy businesspeople like Morneau, and from the Canadian Chamber of Commerce, progressive groups said they were pleased by the change.
“We appreciate moves to increase taxes on the wealthiest Canadians and profitable corporations,” said the Canadian Labour Congress.
“We have been calling on the government to fix the unfair tax break on capital gains for a decade,” said Katrina Miller, the executive director of Canadians for Tax Fairness. “Today we are pleased to see them take action and decrease the tax gap between wage earners and wealthy investors.”
“This is how housing, pharmacare and a Canada disability benefit are afforded. If this is the government’s response to spending concerns, let’s bring it on. It’s about time we look at Canada’s revenue problem,” said the Canadian Centre for Policy Alternatives.
The capital gains tax change was pitched by Freeland as a way to make the tax system fairer — especially for millennials and Generation Z Canadians who face falling behind the economic status of their parents and grandparents.
“We are making Canada’s tax system more fair by ensuring that the very wealthiest pay their fair share,” Freeland said Tuesday after tabling her budget in Parliament.
WATCH: New investment to lead ‘housing revolution in Canada,’ Freeland says
The capital gains tax, which the government says will raise about $19 billion over five years, is also being pitched as a way to help pay for the government’s ambitious housing plan.
The plan is geared toward young voters who have struggled to buy a home. Average housing prices in Canada are among the highest in the world and interest rates are at 20-year highs.
Tuesday’s budget document says some wealthy people who make money off asset sales and dividends — instead of income from a job — can face a lower tax burden than working and middle-class people.
Morneau, who comes from a wealthy family and married into another one, is on the board of directors of CIBC and Clairvest, a private equity management firm that manages about $4 billion in assets.
According to government data, only 0.13 per cent of Canadians — people with an average income of about $1.4 million a year — are expected to pay more on their capital gains as a result of this change.
But there’s also a chance less wealthy people will pay more as a result of the change.
Put simply, capital gains occur when you sell certain property for more than you paid for it.
While capital gains from the sale of a primary residence will remain untaxed, the tax change could affect the sales of cottages and other seasonal and investment properties, along with stocks and mutual funds sold at a profit.
A cottage bought years ago and sold for a gain of more than $250,000 would see part of the proceeds taxed at the new higher rate.
But there’s some protection for people who sell a small business or a farming or fishing property — the lifetime capital gains exemption is going up by about 25 per cent to $1.25 million for those taxpayers.
Freeland said Tuesday she anticipates some blowback.
“I know there will be many voices raised in protest. No one likes paying more tax, even — or perhaps particularly — those who can afford it the most,” she said.
“Tax policy is not only, or chiefly, the province of accountants or economists. It belongs to all of us because it is how we decide what kind of country we want to live in and what kind of country we want to build.”
Morneau had little praise for what his successor included in her fourth budget.
Morneau said Canada’s GDP per capita is declining, growth is limited and productivity is lagging other countries — making the country as a whole less wealthy than it was.
Canada has a growth problem, Morneau warns
The government is more interested in rolling out new costly social programs than introducing measures that will reverse some of those troubling national wealth trends, he said.
“Canada is not growing at the pace we need it to grow and if you can’t grow the size of the pie, it’s not easy to figure out how to share the proceeds,” he said.
“You think about that first before you add new programs and the government’s done exactly the opposite.”
The U.S. has a “dynamic investment culture,” something that has turbo-charged economic growth and kept unemployment at decades-low levels, Morneau said. Canada doesn’t have that luxury, he said.
He said Freeland hasn’t done enough to rein in the size of the federal government, which has grown on Trudeau’s watch.
The deficit is now roughly double what it was when he left office, Morneau noted.
“There wasn’t enough done to reduce spending,” he said, while offering muted praise for the government’s decision to focus so much of its spending on the housing conundrum. “The priority was appropriate.”
Investment
Saudi Arabia Highlights Investment Initiatives in Tourism at International Hospitality Investment Forum
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RIYADH, Saudi Arabia — The Saudi Ministry of Tourism is currently taking a prominent stage at the International Hospitality Investment Forum (IHIF), presenting a unique opportunity for global investors to dive into the thriving tourism landscape of the Kingdom. With the spotlight on the Tourism Investment Enablers Program (TIEP), that was recently announced, Saudi Arabia is aggressively pushing towards its Vision 2030 goal of being a top global tourism destination for investors and tourists alike.
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This strategic presentation comes at a time when Saudi Arabia’s tourism sector celebrates an incredible milestone of 100 million visitors in 2023, seven years ahead of schedule, marking a significant stride towards economic diversification and emphasizing the sector’s growing contribution to the national GDP. The flagship Hospitality Investment Enablers (HIE), one of TIEP’s initiatives, aims to leverage this momentum, planning an investment infusion into the hospitality sector of up to SAR 42 billion in key destinations, which alone is anticipated to create 120,000 new jobs by 2030.
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The IHIF audience is getting a close look at Saudi Arabia’s plans to expand its accommodation capacity dramatically. The Kingdom is targeting an increase in hotel rooms to over 500,000 and aiming to welcome 150 million visitors annually by 2030. The HIE stands at the core of these ambitions, designed to energize the hospitality sector by introducing a new wave of supply in targeted tourism hotspots, significantly enriching the Kingdom’s diverse tourism offerings.
The initiative is supported by a suite of strategic enablers, including access to government-owned land under favorable terms, streamlined project development processes, and regulatory adjustments aimed at reducing barriers to market entry and operational costs. This comprehensive approach is expected to catalyze a significant socio-economic transformation within the Kingdom, with private sector investments projected to reach SAR 42.3 billion and a forecasted annual GDP increase of SAR 16.4 billion by 2030.
Saudi Arabia’s active participation in IHIF aims to showcase the Kingdom as an enticing investment frontier for international investors, emphasizing the lucrative opportunities within the tourism and hospitality sectors. This global stage provides the perfect platform for the Ministry of Tourism to forge lasting partnerships and highlight the Kingdom’s commitment to elevating its tourism industry standards, fostering sustainable growth, and offering robust support to investors.
Through this engagement, the Saudi Ministry of Tourism is not just showcasing investment opportunities; it is inviting the world to be a part of Saudi Arabia’s ambitious journey towards redefining global tourism norms. Investors are encouraged to seize this unparalleled chance to collaborate with the Kingdom, as it paves the way for a new era of tourism excellence aligned with Vision 2030’s transformative objectives.
Investment
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