How to Survive a Bear (Market) Attack | Pickler Wealth Advisors

We Are Here, Every Step

WE ARE HERE, EVERY STEP OF THE JOURNEY

This year has been tough for all of us. The market roller coaster, inflation, foreign wars, government policy changes, and navigating a post-pandemic world have put us all on edge. What it all boils down to is the fear of the unknown. What does tomorrow hold?

The fears you’re feeling in regards to this bear market are real. But more importantly, they’re valid. It’s quite natural to grow uneasy when a market downturn begins to look like it’s here to stay. The uncertainty and volatility can often bring out some of our worst fears.

That’s why we have put together this Field Guide for our clients. As you will see throughout this guide, staying the course is the key to success. We are here to help you navigate this rough terrain and to let you know you are not alone.

Words of Wisdom

“Bull markets are born on pessimism, grown on skepticism, mature on optimism, and die on euphoria.”
-Sir John Templeton, American-British investor

Understanding a Bear Market

UNDERSTANDING A BEAR MARKET

The standard definition of a bear market is when major US stock indexes – like the S&P 500, Dow Jones Industrial Average (DJIA), or the NASDAQ – fall by at least 20% or more. A bear market is not so much a technical definition as it is an expression of a particular market sentiment. Bear markets are normal. They tend to be short lived with an average length of less than a year, and they can create a great buying opportunity.

How the bear market got its name
A bear attacks its victim by pounding its paws downward, similar to a sweeping downward trend. A bull market, on the other hand, is named for the bull’s tendency to attack in an upward motion with its horns, alluding to the upward trend.

What is a bear market and how does it work?

A bear market is fueled by pessimism. While there tends to be some type of economic event such as inflation, recession, or falling stock prices, the issue is perpetuated by a pessimistic outlook from investors. Because of the pessimism, selling increases and stock market prices can plummet.

Facts from the Field

We have had 26 bear markets since 1928. Bear markets tend to last an average of 289 days (9.6 months) with an average loss of 33%. Compare this with the multi-year span of an average bull market (27 since 1928) which lasts an average of 991 days (2.7 years) with an average return of 159%.

History of the Markets

HISTORY OF THE U.S. BULL AND BEAR MARKETS

Click to Zoom In!

How Do We Survive?

HOW DO WE SURVIVE?

If you are going to invest in the stock market for any meaningful amount of time, you will at some point be faced with an angry bear market. When the market drops, it can be tempting to jump out until asset values begin climbing up again. But that can lead to costly mistakes.

Below, you will find three steps toward surviving a bear market including being prepared, avoiding panic, and staying confident. Follow our Keys to Success to learn how to stay calm and follow the plan.

Step 1: Be Prepared

STEP 1. BE PREPARED

If a bear market catches you unprepared, your chances of survival are weakened. To ensure survival, your preparation should be both mental and physical.

Mentally prepare yourself during good markets by acknowledging that bear markets, while completely unpredictable, do happen (and quite frequently at that.) Never be surprised when the next attack comes along. Being well diversified can help cushion against losses. Having multiple levels of liquidity will ensure you have cash in times of need. In every bear market there are likely certain segments of the markets that get hit much harder than others. It’s extremely difficult to forecast these ahead of time. One preventive measure you can take is to diversify within the equity market as well as across asset classes.

Keys to Success:

Understand that bear markets, while unpredictable, do happen
Develop and update your financial plan with your trusted advisor – match your money to your goals
Diversify your portfolio – being well diversified can help cushion against losses
Focus on your goals and review allocations

Work with your financial advisor to assess your risk tolerance
Practice staying calm
Have an emergency fund
Know that you have the resources, like your advisor, to weather a crisis
Remember: downturns don’t last
Don’t miss out on market rebounds

STEP 2. DO NOT PANIC

It has been said that the best tip for surviving a bear attack is to play dead. It will be good practice for when you are actually dead a few seconds later. Okay, maybe we are not talking about that kind of bear attack, but seriously…get some mace.

What we are talking about is the kind of attack that happens when the stock market is down. The most important thing to remember when it comes to an angry bear market: Do Not Panic.

Remember: don’t try to outrun a bear. They can reach speeds of 35 miles per hour, and running only increases their appetite. All you accomplish by panicking and selling is converting short-term market fluctuations into permanent actual losses.

Remember, we are all in the same boat. However, this is not the Titanic. The ship will right itself – but perhaps not overnight.

Waypoints of the Market

Step 2: Do Not Panic