By Jessica Wee

The bears have come out to play, what now?

Since 13 June 2022, you would have been bombarded by headlines announcing that we are officially living in a ‘bear market’.

The term ‘bear market’ is used by Wall Street when an index like the S&P 500 or the Dow Jones Industrial Average, has fallen 20% or more from a recent high (3 Jan 2022) for a sustained period of time. It’s a symbolic threshold for investors that signals an upcoming recession. For the man on the street, it simply means get ready for tough times now!

Bear markets are a periodic feature of the stock market. Since World War II, there have been nine declines of 20% to 40% in the S&P 500, and three others of more than 40%.

On average, stocks took 14 months and 58 months to recover, respectively, after those declines. The S&P 500 fell 34% from Feb. 19 to March 23 in 2020; stocks recovered by mid-August and ultimately rallied 114% through Jan. 3, 2022, the recent record, according to S&P Dow Jones Indices.

Wall Street is also currently spooked by many factors, including high inflation, rising interest rates, war in Ukraine and worries about recession. Fears came true and the Federal Reserve took an aggressive move to cool inflation earlier than initially expected by raising a 75 basis points rate increase this week!

Should you now live in fear? Should you buy more equities? How should we invest during a bear market?

Investing at a chaotic time like this takes a leap of faith and planning. If you can handle it, a falling stock market is a great time for people planning to get long term returns and it’s akin to a major shopping spree!

However, I wouldn’t put any money in stocks until I am sure that I can pay my bills first. Once the critical expenses are accounted for, and as long as you can withstand some short-term losses, then broadly diversified, low-cost index funds are a good way to invest in the overall stock market.

This method eliminates the risk of holding the wrong specific stocks at the wrong time.

Be aware that the index performance will mirror the market performance ie if the market generally falls further, so will the index which you have invested.. And vice versa.

Let history be our teacher… The U.S. stock market has always recovered from declines in the past. If you put money in stocks, over 10 years you would have been down only 6% of the time. Over 20-year periods, the market has never been down. There could always be a first time, of course, and the experience of protracted losses can be excruciating.

That’s why it is important to hold high-quality bonds or other low risk instruments and to be sure that you have put aside money for emergencies.

Predicting when a bear market will end and the next bull market will start is a fruitless task, with one big exception: Intervention by the Federal Reserve would be a crucial sign of a change in fortune for the stock market. At the moment, the Fed is raising interest rates and taking other measures aimed at slowing the economy and bringing down inflation — and those moves are all contributing to the slump in stock markets globally.

Here are nuggets of advice to help you plan on what you should do during a bear market:

  • Don’t sell your investment if you do not need the money
  • Add another income stream
  • Continue to invest as the stock market is on sale
  • Reduce your spending
  • Secure your income by not getting laid off/fired
  • Limit your fixed expenses eg: electricity/food bill
  • Stay away from consumer debt
  • Have an emergency fund
  • Make dollar-cost averaging your friend
  • Invest in sectors that perform well in recessions. For example, investing in a consumer staples ETF will give you exposure to companies in that industry, which tends to be more stable during recessions.

Resisting the temptation to sell investments when markets plummet is difficult, but it’s one of the best things you can do for your portfolio.

If you have trouble keeping your hands off your investments during a bear market, you can have a robo-advisor or a financial advisor manage your investments for you, in both the good times and the bad.


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