Investment Options in a Long Term Bear Market

Everyone is hoping the stock market returns to its highs, but a realistic outlook of lowered expectations will best serve individuals. A real disconnect exists between investors and the truth about today’s market conditions. The truth is the market will likely never return to the way it functioned before the events of the past year-and-a-half. Our financial system has experienced ruptures that will take a long time to repair and the evidence suggests a poor economy will saddle growth for quite some time. The delicate touch required on the part of government intervention has been less than effective and sets a dangerous precedent for the future of free markets.

The most alarming long-term concern is the implication of an aging Baby Boomer generation. The single largest cross section of our population has just surpassed their peak spending age and will now shift into savings mode. Their focus will undoubtedly be reinforced by the fact that their savings have been decimated and they are a mere 10 to 15 years from retirement. This should be a real concern since two-thirds of our GDP is directly related to consumer spending — think Japan’s notorious lost decade where their Baby Boomers shifted from spending to saving.

None of this should preclude investors from finding opportunity, but they must identify the truth and take responsibility for the growth of their retirement savings. Investors have options as long as they have an appropriate plan of action.

We can expect heightened market volatility will be with us for the foreseeable future and some areas of the market will thrive while others are hitting new lows. This brings us to the first option for navigating this market -“ active management. During extended bull markets a passive buy-and-hold strategy can work fine. It is when the tide retreats and the market begins to turn downward that this strategy can come up dangerously short.

Active portfolio management takes time, commitment and knowledge. This strategy requires moving investments in and out of narrow segments of the market over relatively short periods of time. The upside is that if you have the right research and enough confidence this can be a rewarding strategy, and fees are limited to fund expense ratios and trading commissions. The downside is that it consumes a significant amount of time and can devastate savings if executed incorrectly.

Of course, individuals can seek the expertise of a highly qualified financial advisor to manage their money. This relieves the burden of active management and can be a rewarding strategy as long as the advisor has a clear picture of the individual’s goals and expectations are realistic.

Options also exist for those who do not like the idea of incurring more losses, which is always a possibility with direct investment in the market. Certain investments offer protection against market losses, a minimum guaranteed return and still provide the opportunity to participate in market gains, while others can ensure a guaranteed steady return that will outpace the rate of inflation regardless of market fluctuations. Those individuals who capitalized on these opportunities since the market began its historic downturn are likely the only people still smiling about their investments today.

A predictable income stream is essential as retirement comes into focus, regardless of how it is achieved. Investment opportunities always exist despite the general direction of the market. Take the time to decide what level of responsibility will work and pursue the strategy that makes the most sense. Most importantly, maintaining reasonable expectations for the stock market and understanding your goals and appetite for risk is critical to developing an effective plan of action.

Michael Rubino is founder and CEO of Rubino Financial Group, a comprehensive financial services firm in Troy, Mich. Michael is a frequent guest on CNBC and FOX Business, and can be reached at [email protected].