‘A silly, silly game to play’: 4 tips to get through this bear market and stay out of trouble

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‘A silly, silly game to play’: 4 tips to get through this bear market and stay out of trouble

The stock market has fallen significantly from record highs in 2021 and is now in a bear market, with many investors looking for creative ways to bounce back.

So what do you do if you’re concerned that your holdings have gone down? Paying out for a number of alternatives? Buy the dip? Hide your money under a mattress? (Do not.)

There have been 26 bear markets since 1928 — periods when the stock market experienced a protracted slowdown, with prices falling at least 20% from a recent high — and if ever there was a time to listen to the lessons of history, this might be it.

“When we had the 1987 crash, the biggest one-day stock market crash ever, markets were back to pre-crash levels within two years,” said Connel Fullenkamp, ​​an economist at Duke University.

In other words, it may seem scary to see your investments fall, especially after the record profits of recent years, but it won’t last forever.

“If you have time, it’s your greatest ally here,” says Fullenkamp. “And if you can just hang in there and give the markets time, in the rearview mirror this just becomes a little bump in the road.”

Do not miss it

1. Check your emergency fund

Before looking at your stock holdings, assess how long the money you have on hand will see you through a downturn, said Martin Schamis, head of wealth planning at Janney Montgomery Scott LLC, a financial services firm with offices in the US.

“Check your position in terms of your savings reserve, your cash reserve, your spending account and make sure you’ve maintained those carefully,” he says.

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At best, that money will get you through the next six to 12 months, if needed.

“Short-term fluctuations in the market won’t affect your spending when it comes to everyday necessities — groceries, fuel, etc., etc., household items, whatever you have,” Schamis added.

2. Rebalancing the Bull Market

You may also want to consider how your overall investment portfolio is distributed across major asset classes: stocks, bonds, and alternatives such as real estate.

“As a result of the current market environment – ​​a very long bull market where stocks have done very well and super low interest rates are certainly the lowest we have ever seen in our lifetime – we are seeing a lot of clients who are currently very heavily invested in equities,” says Schamis.

Now might be a good time to think about reassignment if you’re investing too much in one area.

“In a bear market or a time when there is fear of a bear market, it’s a good time to go back to that allotment and ask yourself, ‘Am I well invested?’… heavily invested in stocks, or if your portfolio seems too risky,” he says.

Stocks that pay a high dividend are often a good investment in uncertain times because even if the price of the stock falls, you will still be paid a dividend.

Bonds are also generally a good option when the stock market is low, but keep in mind that they are sensitive to interest rates. At the moment, the 10-year Treasury rate is about 2.6%, lower than the long-term average of 4.27%.

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3. Don’t try to time the market

Trying to play the system by paying out and then getting back in at the right time can be risky.

“It’s very difficult to accurately capture the bottom,” Schamis says.

Fullencamp also advises against it.

“I believe that market timing is a silly, silly game to play,” he says. “Time is your greatest ally; don’t pretend to be smarter than the market.”

The method of “buying the dip” has become a popular mantra of online investment forums.

If you’ve been tracking a stock and know what price you’d like to buy it at, the strategy can work for you. However, in long periods of uncertainty – such as a recession – it is difficult to say whether that stock will return to its previous price, and when. It’s a risky long-term approach.

Instead, Fullencamp suggests using the dollar cost averaging method, where you put a fixed amount into your investments each month, regardless of where the market stands. If you invest in your workplace 401(k) through payroll deductions, you are doing just that and must stick to it.

“Just keep putting money in it and then look at the statements every now and then and be amazed at how much your money has increased,” he says.

4. Be patient

The S&P 500 last fell into a bear market at the start of the COVID-19 pandemic in 2020. But that only lasted two months, while the fall of the 2008 crash took much longer to bounce back.

On average, bear markets last about one to two years, so if you can, try to wait it out and stick to your long-term investment plan.

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“Bear markets are always an opportunity to stay invested in the first place, because it passes and it becomes a bull market again,” Schamis says.

And the last thing you want to do is miss the benefit, Fullenkamp says.

“They’ve done study after study, where they’re doing this experiment – ​​suppose you buy stocks at the absolute peak of the market, and then it crashes and you hang on, are you going to be okay? And the answer is yes,” says Fullenkamp .

Part of the reason for that is that many of the market’s best days happen shortly after the worst.

For example, if you made a $10,000 investment in the S&P 500 and were fully invested in the past 15 years, it would have made nearly $25,000 more than someone who missed the top 10 in the market, according to Putnam Investments.

If you have a balanced portfolio and stick with it, chances are you’ll be fine in the long run.

“The bear market will end,” Schamis says. “The market will continue to improve for many years to come.”

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This article provides information only and should not be construed as advice. It comes without any kind of warranty.