3 Key Reminders for Navigating a Bear Market

Posted on July 13, 2022
Share Post: facebook Created with Sketch. twitter Created with Sketch. linkedin Created with Sketch. mail Created with Sketch. print Created with Sketch.
Dear Friends,
The S&P fell 21% since January 2022, resulting in the worst first-half performance since 1970. With US equity markets hovering in bear market territory, it is more crucial than ever that investors keep a steady hand.

However, there is a silver lining for investors. When the S&P 500 has fallen at least 15% in the first six months of the year, it has risen an average of 24% in the second-half. All the more reasons to stay patient!
Here are three key reminders for best ways to navigate a bear market!
1) Resist the Urge to “Do Something” (unless it’s moving cash off the sidelines!)
There is no way to predict how long or how severe bear markets will last, but what we can say, is the media has a tendency to create a negative outlook and a more alarmist approach. This creates panic and an urge to “do something,” like cutting down on equity exposure or selling out of stocks altogether. Neither of those impulsive decisions is a good one. Bear markets don’t last forever, in fact, they generally are much shorter than bull markets and tend to recover faster. The key takeaway here is, bull markets are longer and stronger than bear markets.

 
2) Remember that Bear Markets are Factored into Return Expectations
Most long-time equity investors know that the historical returns of U.S. stocks fall in the +8% to +10% range depending on the time period analyzed. But we sometimes forget that these expected, over-time returns factor in bear markets – even very significant ones like the 2000 tech bubble and the 2008 Global Financial Crisis. We still do not believe we are facing down this type of bear today – the U.S. jobs market is still historically tight, household finances and the U.S. consumer are still healthy, and corporate profit margins are high. We believe sentiment has fueled declines more than fundamentals have.
At the end of the day, an investor’s asset allocation should be established based on return expectations needed to meet a certain set of goals and objectives. If stocks are part of the asset allocation, which they usually are, then just remember that bear markets are always factored into your return expectations, and part of the investment cycle.
As the chart below indicates, the median return one year after a bear market begins is 26% — not a bad recovery!
3) Participating in the Rebound in Now the Top Priority
Once the market has crossed into bear market territory, the next 12-months return for equity investors has almost always been positive. The two exceptions since 1950 were the tech bubble bear market in 2001 and the Financial Crisis bear in 2008. Even with those two instances factored in, the median 12-month return for the S&P 500 following a bear market has been +23.9%. In other words, being invested once the stock market crosses the -20% level has paid off consistently throughout history.
The issue is that there is no way to know when the market will stage its strong recovery, though history does tell us that it usually happens in close proximity to the scariest down days. Here’s a key stat to remember: over the last 20 years, 70% of the stock market’s best days have occurred within two weeks of its worst days. This speaks to the perils of trying to time exit and entry points during heightened volatility like we’re seeing right now. Doing so means potentially – if not probably – missing out on the market’s best rallies that every equity investor needs to drive investing success.
With that, stay patient here. While we cannot know when the new bull market will begin, history tells us that it will start before anyone knows it, and that some of the best gains will happen in those early days. Investors should not be on the sidelines when that happens.
Please reach out with any questions.
Debbie
Share:
facebook Created with Sketch. twitter Created with Sketch. linkedin Created with Sketch. mail Created with Sketch. print Created with Sketch.
Share Post: facebook Created with Sketch. twitter Created with Sketch. linkedin Created with Sketch. mail Created with Sketch. print Created with Sketch.

RECENT POSTS

Your Silicon Valley Bank Questions Answered

By Chelsi Balfour

You likely have heard about the recent Silicon Valley Bank (SVB) collapse and probably have questions. Here, we provide you with unbiased answers to your questions.

Thinking About Retiring Early? 8 Things to Consider First

By Thomas Fridrich

Tom Fridrich, JD, CLU, ChFC®, Senior Wealth Planner We’ve all asked ourselves whether it’s too early to retire (usually after a particularly challenging commute or dealing with a difficult client).  You may have even gone so far as to take a sneak peek at your account statements …

Weekly Update: February 27th

By Kate Terhaar

By Debra Taylor, CPA/PFS, JD, CDFA™ Dear Friends, For investors, it may feel like déjà vu all over again as inflation and the Fed dominate market headlines on a day-to-day basis. After all, the numerous market swings last year were driven by ever-changing expectations around the Fed – …

4 Tips to Take Your 401(k) to the Next Level

By Matthew Kory

Matt Kory, Vice President, Retirement Programs As a retirement income vehicle, the 401(k) is second in popularity only to Social Security – and as CNBC reported in 2019 the number of 401(k) millionaires is at an all-time high. But is a million dollars even enough for your retirement needs? 

1 2 3 … 224 225 226

Get in Touch

In just 15 minutes we can get to know your situation, then connect you with an advisor committed to helping you pursue true wealth.

Schedule a Consultation

Categories

TweetsFollow Us