5 Tips for Dealing With a Bear Market, #104
In light of the recent stock market decline, many people are wondering what they should do (if anything) to survive the bear market. On this episode, I’m going to give you five tips to help weather the financial storm in your portfolio. Get ready to explore the history of bear markets and time-tested strategies used to come out on top during market declines.
You will want to hear this episode if you are interested in...
What is a bear market? [1:18]
The importance of knowing your asset allocation [3:30]
Why you should have a diversified portfolio [5:50]
Don’t time the market [7:35]
Why statements are unhelpful right now [9:46]
Should I stop investing? [10:37]
The impact of having a financial advisor [11:49]
The bear necessities
If you’ve listened to or seen any financial talk show in the last few months, you’ve probably heard the term “bear market”. A bear market is when a non-cash asset class (stocks, bonds, real estate, or commodities) has a 20% decline or more in value. The time frame for this devaluation isn’t set and could happen over a short or extended period of time. The reality is bear markets happen more often than we’d like. We are currently in the 7th bear market since 1980 according to the S&P 500, with the most recent being in 2020 due to the pandemic. The length of time it takes the market to recover is truly a case-by-case basis. The COVID bear market of 2020 only took five months to bounce back, while the 2007 housing market crash correction took over four years. Check out the chart below for a history of the past eleven bear markets:
Patience is a virtue
The future is impossible to predict. All we have is past data to give us ideas for possible market outcomes. Yet, every time we turn on something like CNBC or FOX Business, we have so-called financial experts telling us to SELL because the house is burning down. If we can acknowledge that the media exists solely to sell ads, then we have to confront the fact that they have a vested interest in their viewers being sucked into the negativity to sell air time. Analysts can say the market is collapsing until they are blue in the face, but they have absolutely no idea what’s going to happen. What we DO know is that people who jump ship and miss the market’s best days will have significantly compromised returns going forward.
There are those out there who try to “time the market”. This means selling off underperforming stocks with the expectation that they will be able to hop back in right before the value goes up again. The likelihood of getting that timing right isn’t unheard of, but it is highly unlikely. Sentiment changes fast, and before you know it, you’ve missed a major market return that would have been yours if you had just stayed invested. Listen to this episode for more bear market tips!