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Many new investors haven’t experienced a recession during their investing years, and so may need some guidance as to what to expect. Elizabeth O’Brien reports on investing in a recession in Barron’s:
It can be hard to sit on your hands amid market volatility, so if you feel the need to do something, consider making a stock wish list, Stovall said. Income-focused retirees should think more like landlords than traders, he said. In other words, you want to own companies that can pay the rent (dividends, in this analogy) on time and can weather increases in rent. 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).
Pulling your money from stocks might make you feel safe in the short term. Problem is, you’re unlikely to get back into the market in time. Over a 20-year period, missing the 10 best days results in annualized returns that are roughly half of what you would have gotten had you stayed invested and not tried to time the market, according to research from J.P. Morgan Asset Management. Investors might be surprised to learn that during this period, the market’s best days tend to fall within two weeks of its worst days.
Meanwhile, investors of all ages should take advantage of rising interest rates and put any cash on hand to use. “The only free lunch in finance is the ability to get additional yield without taking on additional risk,” said Greg McBride, chief financial analyst for Bankrate.com.
One way to do that today, he said, is by moving your savings from a big legacy bank that pays around 0.01% in interest to an online bank. Online banks are starting to offer more competitive rates on their high-yield savings accounts. For example, Ally is offering a 0.90% annual percentage yield, and Marcus is offering 0.85%. Rates will likely continue to rise and may hit 2% by the year, McBride said.
Lucas Kulma, a financial advisor at Moneta Group in Denver, keeps his retired clients’ immediate spending needs in a high-yield savings account. He keeps money for their intermediate-term needs, between four to eight years’ worth of expenses, in bonds. He constructs bond ladders with municipal bonds in taxable accounts and corporate bonds in tax-deferred accounts, using staggered maturities of 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 during each calendar year (so a couple could buy $20,000). They cannot be cashed within 12 months of purchase without a penalty, and this relative lack of liquidity means they belong in clients’ intermediate-term bond bucket, not in the cash bucket, Kulma said.
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