Smart Investment Strategies for a Bear Market

by Benjamin Beck, CFP® Benjamin Beck, CFP® | October 10, 2022

How do you prepare for a bear market? You don’t. Preparing for a bear market would mean you know when one is coming, what impact it will have, and how long it will last. The truth is, none of us can predict the stock market. The market is by its very nature, volatile. What we do know is that it will rise and fall over time. The only way to “prepare” is by making your best moves whenever possible and seeing your strategy through. 

 

What Is a Bear Market?

We’ve discussed this before, but a bear market is when the stock market plummets 20% or more from its last high, causing chaos and fear to distort the long game of many investors. However, bear markets are not forever markets. They are — relatively speaking — temporary. The average bear market lasts 15 months. That’s 15 months of insanity in the media, 15 months of dread-filled conversations with family, friends, colleagues, and most of all, doubt in yourself and your investment portfolio

We are in what’s technically our third bear market in less than four years. We're down south of 20% on the S&P 500 so far this year - that’s one bear market. Then at the onset of the pandemic, the business shutdown that followed ushered us into another bear market. And then let's not forget that at the very end of 2018 we also very nearly entered a bear market, starting in October 2018, which bottomed out right around Christmas Eve. Is your portfolio ready to face this and future bear markets? Get prepared to take the long view with these investing tips.

 

Stay Disciplined & Don’t Get Swept Up in the Noise

If you’re listening to news of any kind, there’s really nothing positive to hear. Whether it’s the situation in Ukraine or inflation, Wall Street analysts or political analysts — everything is doom and gloom. The negativity just flows. 

Let’s look at inflation, for example. Think about it, what is different between two days ago and today when it comes to inflation? Inflation was here and is still here today. Nothing has substantially changed. The Ukraine and Russia conflict has been going on for a long time, as have other international conflicts. This is not to minimize the human aspect of these events, but when it comes to looking at geopolitical or other external factors, as human beings we have a tendency to get caught up in wild swings of pessimism and optimism.

As an investor, I advise you to close your eyes, not open your statements, and to truly do your best to ignore the day-to-day fluctuations as the markets react to external factors. I'm not saying that this doesn’t come without a level of discomfort. No question about it, it’s hard to escape the stress that is a natural outcome of volatile markets and news about rising prices. Yet those who can control what is within their control and not worry about controlling things outside of their control, are those who can experience success. The key is to be affected by outside factors as little as possible: positivity or negativity. 

 

A Bear Market Is an Indicator but Not a Trend

Since we have gone through so many bear markets in the past four years, there is this feeling of “this time it’s different” and it never really is. With perspective, we can see that the markets have always, always recovered from bear territories.

If you ever watched the movie, Rounders, with Matt Damon and Ed Norton, both of whom played the roles of professional Blackjack players, you might recognize this quote: “Few players recall big pots they have won, strange as it seems, but every player can remember with remarkable accuracy the outstanding tough beats of his career.”

And so it goes. We hit a “tough beat,” and we start to experience discomfort. That discomfort grows as we’re exposed to more news, like, “Oh, geez, it’s starting to look like the Fed’s going to be raising interest rates for a long time.” 

As we’re introduced to more and more negativity through the media, friends, colleagues, and family, our personal negative experiences become refreshed. This in turn can affect our actions, which can impact our ability to stay on course.. 

I think back to my baseball days.  If I made an error, and all I could think of was, “Oh my goodness, how embarrassing was that…” the next thought that would follow was, “I can’t let my team down. What if I let my team down,” as doubt and insecurity would take over all rationality. If I was not adept at clearing those thoughts from my mind, by having what our coach called “ice water in your veins,” I would absolutely enter a vicious negative cycle. I would be doomed and I would take the team down with me. 

I don't think that what we're talking about here with the markets and making decisions about your own investments is any different from baseball. Just like a few bad plays don’t ruin your chances of a winning season, bear markets come and go, but you can still make smart investment decisions throughout your life that can lead to successful wealth management.

 

Prepare for the Market Rebound

If history teaches us anything it is that markets rebound. The danger to your long-term financial goals is if, during so-called “down markets,” you allow negative thoughts to take over. It raises the probability that you might make an emotional mistake by going to cash. Going to cash provides only momentary relief, “Oh, I just want to escape the pain for a minute,” is what it produces. Don’t imagine that the relief lasts longer than a moment. It doesn’t. I’m not immune to any of this, but I am practiced at clearing my mind and keeping perspective that historically, the markets have recovered. Besides, I have no idea as to whether the market is high or low, and I do not know what tomorrow will bring. No one does. 

What I do know is that inflation is the persistent enemy of every investor. It doesn’t take CNBC or the Wall Street Journal to remind me that I need to watch out for it. If my investment strategy considers the erosive powers of inflation, which the Beck Bode Strategies absolutely do – in fact, fighting inflation is the bedrock of our philosophy – then so-called “news” about inflation won’t send me into a negative thought spiral about my future. 

We know that things will cost much, much more in the future than they do now. For this reason, our strategies account for inflation regardless of whether you are now 30, 40, 60, or 70 years old.  At Beck Bode, we don’t fight inflation with fear, we fight inflation with strategy.

 

Investment Strategies for Any Market

In my mind, I keep coming back to the word “courage.” It takes courage to confront the feelings of fear or anxiety that are generated when we hear about threats to our financial (and personal) security. I must find the courage myself, every day, to face my emotions. If you want to be a successful investor, you will, too. 

There are more people to whom I am grateful for their support: all the teachers and coaches who have taught me lessons about staying focused and on track, and of course, my family and friends. It’s taken all these people in my life to help me see clearly through challenging times, to call in the courage I know I have in me. 

My hope is that you can do the same: that you can look to all the times in your life when you decided to stick with something even though it wasn’t easy, even though it required perseverance and a degree of faith. And that what you stuck with was worth it, that you grew in some way and were better for the experience. That is what is required when investing during inflation: a long-term investment strategy that you stick to through thick and thin.

What we all need right now, is a little bit of ice water. 

If you’re ready to make your money work for you in any market, schedule a discovery call today.

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