Well, 2022 is not off to a great start. This is why today we wanted to discuss some strategies on how to respond to a bear market. It should be noted that this is not investment advice it is simply common strategies. We always suggest you consult with your financial advisor for proper planning in your situation.
In preparation for a bear market, we typically ensure our portfolios have been balanced with our goals and risk in mind. A proper balanced portfolio during bear market times can sometimes include temporary investments into inverse securities. Inverse securities are investment vehicles that do well when other market indexes do poorly. It is a way to hedge or protect a portion of your portfolio. They are risky and are not for everyone, which is also why it is important to discuss financial matters with a trained investment advisor.
The “why”
A bear market occurs when a stock market index, such as the S&P 500, falls at least 20% from its most recent high point. Bear markets are not rare. They do occur, the thing is most of us got use to the bull run we just had. Historically, bear markets have occurred every few years and are a normal feature of the investment landscape. In fact, as recently as mid-February 2020 through March of that same year, we experienced a short bear market.
Bear markets are typically caused by some form of disruption in the normal day-to-day. In the last few years, domestically, we have seen corporations struggle with their predictions for supply, manpower, and production. Globally everyone seems to be short on supplies due to trade issues and the eroding of trust between countries. Of course, the Ukraine and Russia wars do not help.
Will the financial markets start moving in a positive direction? Well, that would require a crystal ball and a prediction. Although, historically it will eventually get back on track. Instead, let’s look at what the market is currently doing and consider these moves:
Four Moves for a Bear Market
- Patience. Peeking at your investments now may cause anxiety and fear. Remember, you planned for this or should have. Before investing you took a good look at risk and diversified appropriately. Always remember you should be in it for a long view.
Consider this: From March 2009 until the end of 2021, the Dow Jones Industrial Average gained more than 460%. So, if you’ve been investing for a while, compare where you are now to where you were 10 years ago. You’ve probably made pretty good progress over this time – and 10 years from now, the current downturn may not look so scary.
- Review your Risk Tolerance. If you’re having a hard time coping with investment losses. One of two things needs to happen. First, take a breath and remember what you planned for. Second, it may be time to review your tolerance for risk and see if it’s still the same as it was when you began investing. Our tolerance for risk changes as we move on to different chapters in our lives.
- Review your goals. A bear market is not meaningless, but by itself, it shouldn’t cause you to change your long-term goals. It may cause you to change your strategy, so now is a great time to speak to a financial advisor. If your goals haven’t changed, and you have confidence in your current strategy then keep moving forward.
- The Economy is on Sale. Being involved in a down market is a great place to find quality investments at undervalued prices. Take this time to purchase what you wish you could have before. Add funds to your accounts to rebalance, any imbalance. Bear market’s is where we can earn our greatest gains. Just stay on your plan.
- Get some help. Your future is important and it only makes sense to get some support and maybe some verification if you DIY. Speaking with an advisor or even a portfolio manager may ease any fears or perhaps give you ideas on where to look to make a positive return during this downturn.
A bear market is never enjoyable, but in some cases, it can be profitable. Just remember to take a long view of your goals before making any moves. By reminding yourself of these tips it can help to eliminate anxiety during the bear market and keep you on track.
