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What to do during a bear market

What to do during a bear market

July 07, 2022
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It's not news to anyone that the first half of this year has been rough on investors. After reaching record levels at the end of 2021, the market has experienced six months of volatility and decline.1 In fact, coming on the heels of such sustained gains has made this year's retreats even harder to stomach.


The expectation of many investors was that the upward trend would simply continue, maybe flatten a little, but still climb. Unfortunately, the market is more like a roller coaster than a rocket. You can't count on upward "momentum." And the sudden drops are usually a surprise.


You're probably familiar with the two animals used to describe the behavior of the market: the bull and the bear. A bull market is where stock prices, as a whole are rising. A bear market is where they are falling.2 To differentiate the latter from short-term volatility, experts largely agree that a bear market is when broad market indexes experience a decline of 20%, sustained over a period of months.


It's not an exact measure, but with the major indexes down about 20% from the beginning of the year, pundits are beginning to agree that we are currently in a bear market.


As you can imagine, investors are not taking this news sitting down. Many people are moving their money out of stocks and into a multitude of other instruments they hope will reverse their losses—from bonds to precious metals to obscure commodities. However, because the conditions of this bear market are unique (they always are), these alternatives are not behaving as in the past and so are not always bear-proof.


I been planning for the possibility of a bear market and through diversification has sought to mitigate some of the decline in the indexes, while also preparing you to take advantage of a market recovery. Big gains often happen just a few days each year, and by the time they are evident, it's too late to "buy in."


Anthony Isola, head of the Educator/403(b) Division at Ritholtz Wealth Management, shares his advice on what to do in a bear market—none of which has to do with investing.3


First of all, he recommends that you acknowledge the role of your emotions. Because of our natural aversion to loss, the bad feelings caused by a bear market far outweigh the joy we feel when a bull market is producing nothing but gains.


Second, make sure you're getting enough sleep. The sleep-deprived brain is much more prone to worry. And a lack of adequate rest can lead to many other health issues.


Finally, Isola recommends reading books. Don't try to wade through something in order to "better" yourself. Find something you truly enjoy. When you're engrossed in a book, your mind enters what is known as a flow state. By concentrating on one thing, you lose yourself and stop flitting from worry to worry. The effect is a healthy calming.


"Letting inevitable bear markets determine your happiness is a huge mistake," says Isola. "Get a good night's sleep, read books for fun, and go for long walks. The market will still be there when you return."


If you try all that and still find yourself concerned, be sure to get in touch with me.

Sources:

1. http://go.pardot.com/e/91522/chart-5EGSPC/7gn7mg/1575393511?h=5jAA53PICHwO87WX_1X47LmrKjpx7lVojsHmfSEqlUI

2. http://go.pardot.com/e/91522/-deeper-bull-and-bear-markets-/7gn7mk/1575393511?h=5jAA53PICHwO87WX_1X47LmrKjpx7lVojsHmfSEqlUI

3. http://go.pardot.com/e/91522/ys-for-managing-a-bear-market-/7gn7mn/1575393511?h=5jAA53PICHwO87WX_1X47LmrKjpx7lVojsHmfSEqlUI


Disclosure:

The views expressed herein are exclusively those of Efficient Advisors, LLC (‘EA’), and are not meant as investment advice and are subject to change. All charts and graphs are presented for informational and analytical purposes only. No chart or graph is intended to be used as a guide to investing. EA portfolios may contain specific securities that have been mentioned herein. EA makes no claim as to the suitability of these securities. Past performance is not a guarantee of future performance. Information contained herein is derived from sources we believe to be reliable, however, we do not represent that this information is complete or accurate and it should not be relied upon as such. All opinions expressed herein are subject to change without notice. This information is prepared for general information only. It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. You should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. You should note that security values may fluctuate and that each security’s price or value may rise or fall. Accordingly, investors may receive back less than originally invested. Investing in any security involves certain systematic risks including, but not limited to, market risk, interest-rate risk, inflation risk, and event risk. These risks are in addition to any unsystematic risks associated with particular investment styles or strategies.