So here we are, we are officially in a bear market for US Stocks, and more specifically for the S&P 500 index (which tends to be the most widely quoted and used index to represent the US Stock market as it consists of the 500 largest companies in the US). A bear market is a drop of 20% or more from the most recent stock market highs. So what's an investor to do? A 20 % drop can feel like a pretty big drop. I know these can be scary times, and your emotions and that little voice in your head can start to make you wonder what you should be doing with your investments and portfolios, or that you need to take some specific action. Well, here are three things you need to consider during a bear market.
First, DON'T PANIC! Like I said, I know these can be scary times. Especially, if you are nearing retirement, or already retired, these can be very nerve-wrecking times. However, bear markets are actually normal and they are part of normal market cycles. I think that we have just been so used to the market going up very consistently over the last 10 or so years that this bear market feels different than ones before. Moreover, just keep calm and stick to your investment objective and financial plan. If you let your emotions get the best of you, you will end making costly mistakes that will negatively affect your investment portfolio, and, ultimately getting you off track for hitting your financial goals.
Second, review your financial plan and investment objective with your financial advisor. See how the bear market may be affecting your ability to pursue your goals, or how the bear market is affecting your overall financial plan and portfolio. Where do adjustments need to be made, if any? What opportunities (tax loss harvesting, undervalued assets, etc.) exist in the bear market? And if you don’t have a financial plan, or a financial advisor, you should consider getting an advisor and developing a plan. Bear markets are different than bull markets (bull market is when the market is moving up) and it is better to have trusted counsel with you to help you in your decision making than to go it alone. After all, the Lord himself says “The way of a fool is right in his own eyes, but a wise man is he who listens to counsel. -Proverbs 12:15”.
Lastly, if you have excess cash available in your bank accounts it may be a good time to start investing that cash since prices of stocks are lower, aka stocks are cheaper to buy right now. Talk with your financial advisor and see what might make sense for you to do with excess cash that you have for investing. This reminds me of a quote from Warren Buffet, who said that “Be fearful when others are greedy and be greedy when others are fearful”. Essentially, he is saying that when the majority of investors are scared, worried and not investing because of the bear market that you should actually be “greedy” and investing as much as you can during the bear market. Conversely, when the market is going up and hitting “all-time highs” and investors are not worried and are “greedy” by investing a lot of their cash, it may be a time to start being more cautious with your own investments. In any case, a bear market is not a time to get out of the market or stop investing. If anything, it is quite the opposite.
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.