A bear market is used by Wall Street to refer to a condition when an index like the S&P 500, the Nasdaq, the Dow Jones Industrial Average, or even any individual stock, has declined 20% or more from its recent highs over a sustained time period. We are officially in the next bear market, but what does that mean for stock trading?
Are we in a bear or bull market in 2022?
The S&P 500 index closed in “bear market” territory on June 13 for the first time since March 2020. This imposes a symbolic psychological hurdle for investors as it is often viewed to be a predecessor of a recession.
According to experts, the current bear market is set to last until at least December 2022, with some sources saying it could last until the summer of 2023. The current bearishness makes it difficult to invest in the stock market.
How often do bear markets occur?
Not very often, but often enough. Luckily, bear markets are fairly short-lived. The average is around 289 days (about 9 months), with the longest recent bear market being a little over 18 months.
What is the longest bear market in history?
The longest bear market happened between 1973-1974. It lasted 630, or 21 months overall. The second-longest bear market was from 1980-82 and lasted 622 days.
How much has the stock market dropped in 2022?
Should you invest in a bear market?
Absolutely! Especially if you’re still investing for the long-term, like retirement.
However, if you have short-term goals, or plan on retiring in the next year, now may be the time to focus more on building your cash reserves and figuring out your investments so you don’t lose too much money in the interim.
Can you make money in bear market?
Yes, you can make money in a bear market. But, you have to be sure that you’re making the right investments.
If you’re looking to pay less overtime, investing during a bear market can save you money upfront. But, if you’re choosing high-risk investments (like Cryptocurency) that could continue to lose money, it may not help.
As a long-term investor, you’re going to see your account go through ups and downs. This is normal and common. But, here’s how to survive the next bear market if you’re newer to investing or not sure about what you should be doing.
1) Avoid Panic Selling
The most common knee-jerk reaction is to jump out and wait for good times to come back. Although it immediately stops the bleeding, cutting off your investments entirely can mean missing out on possible gains in the future or minimizing the loss of recovery.
Instead, it has been observed that the odds of returns over time are higher for an individual with a long-term view, who stays invested. This is backed by a well-researched stock market and how growth has happened over time.
2) Invest Consistently
It’s important to continue investing in regular intervals, no matter the market conditions. This increases the odds of purchasing options at more affordable prices. This also raises the chances of seeing the shares rise in value as the market rebounds.
So, continue to make weekly or monthly contributions regularly to your portfolio. Known as dollar-cost averaging, this is a common form of systematic investing that is considered efficient, even when the market has fallen.
Bear market conditions are not an excuse to stop the consistent investing process. It can seem hard to take the risk, but you should trust the process. Again, as it’s been shown, the market always bounces back.
In the backdrop of a market downturn, defensive stocks like consumer staples, healthcare services, and utilities – as well as companies with sound business and healthy balance sheets – can provide opportunities.
Adding higher-quality stocks with a track record of consistent dividend growth can help you boost your portfolio even when stock prices are falling.
Better yet, investors now have access to more actively managed exchange-traded funds, which may come to the rescue during market volatility.
During challenging bear markets, “value” often takes precedence over “growth” — especially for investors. So be on the lookout for value stocks available at a great bargain to help cushion your portfolio.
Over the stretch of a long bull market run, equities could have appreciated or depreciated quicker than the bond or cash holdings. This can leave an investor’s portfolio out of alignment considering the preferred asset allocation.
Bear markets can be viewed as an opportunity to reassess any imbalances. And honestly, this should be done once every year or so anyway, so now is the time to check into yours if you haven’t!
Depending on your portfolio, now may be the time to consider selling investments that have done well and buying those that have fallen to below-market values, depending on the current market conditions and your risk profile.
Be sure to maintain perspective to avoid fear and irrational decisions. A seasoned investor knows not to panic. Instead, finding a trusted financial advisor and sticking to long-term investment plans might come into the rescue.
In the past, no matter the depth and duration of the downturns, markets have bounced back. Think about Warren Buffet’s famous quote. H said that it is wise for investors to be “fearful when others are greedy, and greedy when others are fearful.”
We’re In The Next Bear Market — But There’s Hope!
Yes, it can be scary to see the money you worked hard for and invested start to drop down. But this happens, and it doesn’t mean it will be that way forever.
Focus on what you can do, versus what you can’t:
- Continue to invest consistently,
- don’t panic sell,
- and be sure to rebalance your portfolio to prepare for your future goals.
You’re going to be fine fellow investor, trust the process!
With this next bear market, are you going to stay calm? Will you think about the long-term?
AUTHOR Kimberly Studdard
Kim Studdard is a project manager for online entrepreneurs and small businesses. When she isn't spending time with her daughter and husband, or reading her growing pile of horror books, you'll find her working on her HR degree and working towards FIRE.