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Peter Mallouk: 3 Bear Market Survival Tips to Give Clients Now

By Dinah Wisenberg Brin

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What You Need to Know

  • Over 95 years, stocks averaged 41% cumulative 3-year returns after dropping 20% or more.
  • It's a good time to keep investing aggressively, stepping it up if possible, Mallouk said.
  • Tie the portfolio to the client's financial plan to avoid being at the market's mercy.

Creative Planning President and CEO Peter Mallouk urged long-term investors Friday to take advantage of the bear market, which he sees as a great buying opportunity, and avoid panicking as stocks tumble.

“Stay disciplined,” Mallouk tweeted midmorning, posting a Dimensional graphic showing that from July 1, 1926, through December 31, 2021, the U.S. stock market averaged a 41% cumulative return rate over three years after dropping 20% or more, and a nearly 72% return after five years.

“The market tends to roar back from events like this” over three and five years, he told ThinkAdvisor a short time later, noting that the current downturn hasn’t even hit the average 34% bear market low. “Mistakes get made when people panic.” 

Mallouk called the current market turbulence “a slow unwind,” with “month after month of paper cuts and getting punched in the face.” That trajectory offers opportunity, the financial planner said.

“Buy and hold with every paycheck,” he said. “It seems futile, it seems impotent, but in reality these prolonged bear markets, they’re really a great opportunity for the long-term investors because they give you an opportunity to accumulate multiple times over a long period of time.” 

Mallouk suggested three pieces of guidance for financial advisors to offer their clients now.

  • Continue to invest aggressively with every paycheck, “even pick it up if you can.”
  • Make trades for tax purposes, such as tax-loss harvesting.
  • Rebalance portfolios to buy more securities while prices are lower.

If clients are panicking, tie the portfolio back to their financial plans, he suggested.

“No client should be panicking that has a plan,” Mallouk said. Make sure a client’s portfolio is tied to a financial plan “so the client is never at the mercy of the market.”

Mallouk noted that “bear markets happen all the time and they happen for different reasons.”

The COVID-19 bear market brought the fastest 34% drop in history, “so it was stunning,” and the 2008-2009 great financial crisis sparked the worst bear market since the Great Depression, he said. Before those events, the market experienced “two other whoppers” with the tech bubble and the 9/11 terrorist attacks, he added.

Corporations are doing well now, despite earnings pressures, and fundamental issues are keeping unemployment low, so it’s hard to create a narrative for a steep, permanent recession, he suggested.

“This is like a typical bear market,” Mallouk said. “The market could go down another 20% from here and it would be normal and eventually it would sort itself out.”

Dinah Wisenberg Brin

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