A bear market officially has descended upon Wall Street, but rather than play dead or flee in panic, the key to survival for many investors will be to have patience with their portfolios and take advantage of discounts on stocks, financial advisers here say.


With the chance to adjust their investments before the slowdown now behind them, investors who have created well-balanced portfolios must steel themselves for the rough road ahead, the advisers say. While retirees might need to change which investments they tap for income, they, too, must be careful about pulling money out of stocks, because people are living longer, and keeping too much money in bonds wont produce an adequate return to cover their needs in the long run, advisers say.


People who are invested now are the ones who are the most anxious, but during a downturn you have to be really careful about making unnecessary, emotional changes, says Joel White, a certified financial planner here who owns Joel C. White Co. Traditionally, time has fixed economic problems, and people will often make more money by just staying the course than trying to make a lot of emotional decisions when times are hard.


The bear market officially started two weeks ago when the Standard & Poors index fell to more than 20 percent below its peak level, which is the traditional threshold for a bear market, last October. The threshold was reached earlier this month, when the Dow Jones industrial average and the Nasdaq composite index both fell more than 20 percent from their peaks in October. White says that the global stock market also is dismal, with investors last month losing $3 trillion in stock values.


Slow economic growth, slow growth in profits, rising interest rates, and rising inflation are keeping the market down and represent the worst combination you can have for the stock market, White asserts. He says he doesnt expect the market to recover significantly until at least some time next year.


Even when portfolio values fall steeply, an investor must be careful about making changes because selling an investment while its down locks in losses and forces a difficult decision later on when to reenter the market, White asserts. Historically, when markets recover, they do so quickly, so if investors arent in the market within those few days or weeks, they can miss big opportunities, he says.


White says that as long as investments have a good track record, fall in line with an investors goals, and are managed by good money managers, investors are better off staying put rather than trying to second-guess those managers.


Im not saying that people should just hold their stocks, but I am saying to look at the portfolio carefully, White says. There are some segments that might be worth moving out of now, but you have to make that decision cautiously.


For retirement portfolios, its important to have money set aside in guaranteed investments, such as government bonds, money markets, certificates of deposit, and fixed annuities, so that during downturns one can derive income from those investments and give their equity investments time to recover before tapping them, he says. White says retirees typically should have the equivalent of a years worth of income socked away in a safe account so they can change the investments from which they take distributions, since continuing to draw from stocks that are falling in price is the equivalent to selling low.


A strategy for retirees thats gaining popularity is to calculate living expenses when a person is preparing to retire, then buy a guaranteed stream of income that will cover those necessities regardless of market conditions, he says. The sources of that fixed income could include a combination of funds from Social Security, pensions, and annuities, he says.


If retirees havent diversified their portfolios adequately or planned for switching to a different source of distributions during a slowdown, then one obvious strategy might be to cut back on spending, White says. In drastic cases in which retirees are running out of money, they might need to set up an annuity that will guarantee income thats not related to the stock market, he says.


The bad news is that now is not the best time to be moving everything around to make it more diversified; that should have been done ahead of time, White says. You need to stay diversified in good and bad markets.


Greer Bacon, a certified financial planner here who owns Asset Planning & Management Inc., says she encourages her clients to create statements of investment policy that will act as blueprints for how they manage their portfolios. Such statements include investment objectives for income and capital appreciation; asset allocation; and qualitative factors for stocks and bonds, such as what kinds of stocks to buy and how they should be diversified across and within industry sectors and the credit quality and desired maturity rate of bonds. They also include control procedures such as how often clients should review their portfolios.


Its very helpful in up markets, when its easy to become irrationally exuberant, and down markets, where its tempting to become irrationally upset, Bacon says of the policy.


Bacon says she encourages clients to look beyond the daily fluctuation of stock prices and instead to look at the ultimate driver of those prices, which is a companys ability to create positive earnings growth and its ability to pay shareholders dividends and to grow those dividends. If a company is producing solid earnings, is able to grow its earnings, and its dividend is secure, then an investor neednt panic, she asserts.


Bacon is advising clients to keep their bonds if they meet the quality and diversification parameters set within their investment policies. Emergency fund,/b>


Advisers here say they encourage clients to keep the cash equivalent of between three months and six months worth of living expenses in an emergency reserve before evaluating whether they have money available to invest. If they have extra cash, they might want to look at buying stocks now while prices are low, advisers say. As always, though, investors first should evaluate their investment goals, income needs, time horizon, risk tolerance level, and how many hours theyre willing to work on investments, they say.


White recommends investors enter the market slowly over a period of time and evaluate stocks carefully, especially in such a volatile market. In bull markets, investment selection isnt as critical, because a rising tide tends to lift all boats, he says.


There are certain segments of the market that you need to be careful with, White says. You need to be careful about what banks youre dealing with right now, because banks that are tied to mortgage problems are being looked at very closely by the (Federal Deposit Insurance Corp.).


Bacon also is encouraging clients to take their time getting into the stock market.


Its a good time to consider what youd want your portfolio to look like down the road and start building it toward that goal, she says.


Bacon says that due to rising inflation, she expects interest rates to go up soon, so it would be appropriate for people who are looking to invest in bonds to keep them in the 12- to 24-month range. Possible investments also might include certificates of deposit and money market mutual funds, she says.


With inflation getting to be a problem and interest rates likely to rise, there will be better opportunities down the road to invest in bonds, she says.


Bear markets can create bargains for investors because normally stable blue chip stocks fall along with everything else, says Sean Grubb, a vice president at Spokane-based Northwest Investment Advisors Inc. Investors looking to snatch up stocks at discounted prices have a variety to choose from during the current downturn, in particular, because nearly every segment of the economy, excluding energy and gas, has taken a hit, he says.


Right now, its essentially a fire sale for some of the greatest companies in the world, Grubb asserts. The bottom line is what kind of stomach you have for investing.


Regarding real estate opportunities, Grubb says, I believe a home is a nice place to live and raise a family. Its there to provide shelter; its not a good investment. As for investing in precious metals commodities, he says gold and silver make very nice jewelry, not investment opportunities.


He adds, Precious metals are at 30-year highs right now. Look at what happened to the people who bought houses at the peak of that market.


Grubb says that, as a rule of thumb, investors should buy a mix of stocks in international companies, blue-chip companies, and investments that smooth out the ride during bumpy periods, such as mutual funds, dividend-paying stocks, and bonds, among others.


You want to build a portfolio that doesnt scare you, and yet understand that its not going to be comfortable all the time, he says. The most important thing is that this is a great time for people to reevaluate their portfolio makeup and make sure it fits with their goals and the type of investor they are.


David Baker, a real estate broker and certified financial planner here who owns Baker & Associates LLC, asserts that the Spokane market abounds with good real estate investment opportunities right now. He says that income-producing properties, including single-family homes and duplexes, are good options because the market and interest rates are favorable, the rental market is on an upswing, and a good selection of inventory is available. Also, real estate has its own unique characteristics as an investment, because an investor buys it, but someone else pays for it by renting it from the investor, he says.


You should buy when everybody else isnt buying, and todays real estate market is no different, Baker contends. You only get this kind of opportunity in the Spokane market once every 10 years.


Contact Emily Proffitt at (509) 344-1265 or via e-mail at emilyp@spokanejournal.com.