Ha! I caught you. I know why you are looking at this blog. You think I’m going to tell you when the next Bear market is going to be. Well, I’m actually going to do something even better than that for you. I’m going to tell you what to do when the next Bear market hits (and it will).
First, a little background on Bear markets. A Bear market is defined as a drop of 20% in the stock market from its highest point to its subsequent lowest point. From 1900 through 2014, there have been 32 Bear markets. Statistically they occur every 3.5 years and last an average of 367 days.1
Now gander a bit at this. Here is the split between “up” and “down” time periods on the S&P 500 Index.1
Days: 53% Up 47% Down
Months: 58% Up 42% Down
Quarters: 63% Up 37% Down
Years: 72% Up 28% Down
5-year Rolling Time Period 76% Up 24% Down
10-year Rolling Time Period 88% Up 12% Down
Do you notice the trend? The longer the time period, the greater the percentage spread between up and down in each time period. Does this give you any clue about where the rest of this blog is heading?
Here’s what you do when the next Bear market hits…NOTHING!
Well, that may not be exactly true. For example, if you are in the accumulation phase of your life and building assets to reach goals, in a bear market you should be buying. Shares of good investments are on sale so like any good shopper, you should be buying during these sale times. If you are in the distribution phase of life and using your assets, then during a bear market you want to sit tight. Selling out turns a paper loss into a real loss and recovery, even if you go back into stocks, will be nearly impossible.
Now, there is one thing that you can do before the next Bear market hits and that is to have a diversified portfolio of assets that matches your ability to withstand volatility. That is our job. To make sure you have a portfolio that is diversified by asset classes and holdings; that the portfolio matches your risk tolerance and that it is designed to meet your goals for that money.
Bear markets are never fun, but they happen and must be endured if you are to be a successful investor and successful in reaching your goals. So, having read this blog, you don’t know when the next bear market is going to be (but neither does anyone else), but you know what to do!
Diversification and asset allocation strategies do not assure profit or protect against loss. Investing involves risk. Depending on the types of investments, there may be varying degrees of risk. Investors should be prepared to bear loss, including total loss of principal.
These are the opinions of Mike Berry and not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice.
Mike Berry is a Registered Representative offering securities through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Legacy Wealth Management, LLC and Cambridge are not affiliated. Cambridge does not offer tax advice.
Copyright ©2018 Mike Berry. All Rights reserved. Commercial copying, duplication or reproduction is prohibited.