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Déjà Vu All Over Again - Part 2

Déjà Vu All Over Again - Part 2

| July 13, 2022

Last week we talked about the bear market and how we got here. For the next three weeks, I want to talk about what you can do, as a long-term investor, to weather a bear.

Q: What should investors do during a bear market?

A: Don't panic!

For many investors, seeing their investment portfolios turn red can be alarming and make them want to pull their money out to avoid further losses. But this is the wrong strategy. Like we said last week, if you try to dodge losses like you try to dodge traffic, chances are you will make the situation worse. While bear markets can be frightening, you should not sell unless you absolutely need the money. If you have the luxury of being young, even better, just keep doing what you're doing and this little wrinkle won't affect your long-term. If you aren't young, not to worry, bear markets are historically fantastic opportunities to build wealth for longer-term investors.

When the stock market enters a bear market, the first thing investors need to remember is that bear markets have shown to be an inevitable occurrence in the stock market. They've happened in the past, and assuming they'll continue to happen going forward is one of the safer bets you can make. The one thing you don't want to do in a bear market is panic. Panicking can be especially counterproductive if it causes you to sell your stocks just because of the dropping prices.

The goal should always be to buy low and sell high, not vice versa. Not every stock that drops in price eventually rises again, but history has shown us that the major indexes -- such as the S&P 500, Dow Jones, and Nasdaq Composite -- and the market as a whole tend to bounce back eventually. This is where the often repeated, sage advice of Warren Buffett comes into play. I'm sure you've all heard the quote, I may have even said it to you, "I'm fearful when others are greedy, and greedy when others are fearful."

An investor that starts off methodically putting money into a 401(k) is going to have a bigger balance 20 or 30 years from now if earlier on during their investing career they were able to take advantage of bear markets versus having to buy at all-time highs all the time. That being said, I don’t recommend rushing to invest all your money during a bear market but do take advantage of the discounts on high-quality companies. A bear market is an excellent time to focus on growing their savings. The important thing is to do your best to handle these swings because there will always be more volatility to come.

Q: How long do bear markets last?

A: It depends, but they always end.

The bright side is that the market has bounced back from every single bear market we've seen since the dawning of the markets. Have faith that it’s going to come back in due course well before you retire. However, it sometimes takes a couple of years to recover from some bear markets.

The average bear market lasts 359 days, and it can take a full 38 months to go from the bottom of a bear market to a new all-time high. Getting through an extended stretch like that can be stressful. If you are one of those folks that check your balance daily, and I haven't broken you of that habit yet, now is the perfect time to stop doing that! There’s no reason you need to introduce more anxiety into your life by looking at your balance multiple times a day or every day or every other day.

Next week, we'll talk about the power of diversification, especially in bear markets.

Until next time…

One last thought, I believe an educated investor is an empowered investor. If you like what you’ve read and think your friends and family can benefit as well, please share. 



The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

All investing involves risk including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.