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How to Survive—and Thrive—Through a Bear Market

Investing strategies

I’ve learned a lot in 30 years of investment management, and if one thing is certain, it’s that volatility in the stock market is unavoidable. Bear markets will always follow bull markets, and the only thing we can control is our reaction.

Today, interest rates are volatile, inflation is on the rise, and a recession seems imminent. For individuals with a substantial amount of wealth in the markets, there is an understandable uptick in anxious questions: Should we get out? Should we buy? Should we hold off on a big decision until we see what happens? 

History has shown us there are a few key skills for surviving a bear market: manage your emotional response, review your short-term financial needs, and continue to execute your long-term investment strategy. In this article, I’ll detail a few more Dos and Don’ts that I suggest during times of market volatility to protect—and even improve—your position. 

First Things First: How Do You Spot a Bear Market?

The technical definition of a bear market is a drop of 20% or more in a market index from its most recent high. Since World War II, there have been 14 bear markets, and each one is unique in its depth, duration and cause. A few common themes for what cause bear markets are world events, economic crises and financial market excess.

The 2020 pandemic is the best example of a bear market caused not by economics, but by a world event.  Stocks were trading near all-time highs in mid-February when the pandemic began to spread globally. Broad market indexes lost a third of their value over the next month. The massive global fiscal response to the pandemic brought some stock indices back to all-time highs just a couple of months later (June 2020), making that bear market the shortest and sharpest in history.

We saw longer bear markets from 2007 to 2009 (collapse of mortgage securities) and from 2000 to 2002 (collapse of internet stocks followed by global terrorism). On average, bear markets last around 300 days and stocks lose 36% to 39%. The reality of an average, however, is that there are examples that are shorter and shallower and others that are much longer and deeper.

Our most recent bear market in 2022 was driven more by the macroeconomic environment than by global events. The massive fiscal response in 2020 created an inflationary environment that requires the opposite fiscal response today. The economy needs to slow, and interest rates have to go up to tame inflation. Whether the Federal Reserve can execute this plan without causing a recession remains to be seen. The bond and stock markets are focused on every data point to attempt to see into the future.  

DON’T Try to Time the Market

If a recession does happen later in 2023 or early 2024, it will be the most predicted and expected recession in history. I do not see the value of spending too much time worrying about it. Here are my suggestions for withstanding what’s to come and potentially using current conditions to grow your wealth long-term. 

Whether a recession happens or not this year, there is bound to be another recession in the future.  Trying to predict recessions or the short-term activity of the market can be a dangerous game, and focusing on the day-to-day performance of your portfolio often leads to emotional decisions that can do more harm than good. Keep in mind that in the grand scheme of things, bear markets are relatively short, with a historical average of one year or less. And, research shows that investors who wait out a bear market tend to come out ahead of those who hastily jump out. 

Instead, stick to a long-term, diversified investment strategy and remain focused on your investment goals. Lean on a professional advisor to monitor your portfolio and schedule routine quarterly check-ins. 

DO Have a Plan and Stick to It

At Private Wealth, we write an investment policy for every client, which takes into consideration each investor’s unique circumstances, short-term cash flow needs, long-range goals and risk tolerance. We create these documents because we know that bull markets, bear markets, expansions and recessions are all part of the normal business cycle. No matter what happens in the markets, we execute the plan based on optimal outcomes, not emotions.  

DON’T Give Up on Your Legacy Goals

Whether your legacy plans include the next generation(s) of your family tree, organizations that are meaningful in your life or other strategies, do not let market disruptions change your long-term plans.  

The current estate tax laws create opportunities to transfer wealth to the next generation, but those laws are scheduled to expire on Dec. 31, 2025 (sooner if Congress chooses). Stay with your plan and let’s talk about ways to use the market volatility to your advantage.

If you have it in your heart to give to charity, don’t let the market interfere with your wishes. I think it’s still a great time to be charitable. In fact, many charities are in a time of greater need, increasing the impact of your gifts of time and financial resources. The concept of transferring appreciated shares of stock to accomplish your gifts, then rebuying those same shares with cash, can create long-term benefits for you and the charitable organizations. After all, in a bear market, we can re-buy the shares at much lower prices!

DO Embrace Volatility and Look for New Opportunities

I tell clients to embrace the volatility, and we discuss opportunities to use current conditions to their advantage. The reality is that financial markets in the first quarter of 2023 are significantly different than they were at the beginning of 2022. This is a great time to reassess investment risk in light of the long-term goals that are detailed in your investment policy. For instance:

  • For the first time in many years, the bond market is attractive because interest rates today are significantly higher than they were 18 months ago. This is one bright spot for investors as the Federal Reserve battles inflation. Our team spent 2022 increasing our exposure to this asset class after years of being underweight.

  • Market volatility and interest rates are impacting all markets, public and private. I think it is likely that 2023 and 2024 could be great years to make private capital investments, achieving a higher real rate of return than the publicly traded markets. 

  • Markets tend to overshoot on both the upside (2021) and the downside. For investors with long-term investment strategies, bear markets often present great opportunities to make new investments at favorable prices. I remind my clients that markets go up over time, and the next bull market is coming.  

If you’re interested in learning more about market trends for this year and beyond, take a look at our 2023 Market Outlook, provided by our partners at Fiducient Advisors.  
To discuss your own long-term investment strategy and risk tolerance, connect with a Private Wealth advisor today.

This presentation is offered for informational purposes only and should not be construed as an offer of personal investment advice. It does not account for your specific objectives, situation or needs, and no binding obligation to enter into any transaction with you is to be implied. Please note that PW or its Investment Adviser Representative(s) may trade for their own accounts and consequently, be invested on the opposite side of the market from your order(s) or have long or short positions in the securities referenced.

Investing involves risk, including loss of investment principal. Using a specific strategy or investment advice does not assure earning a profit or avoiding a loss.

PW and Fiducient Advisors are independent entities. There is no form of partnership or legal affiliation between PW and Fiducient Advisors nor is such a relationship created or implied by the information herein.


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