Investing is a rollercoaster ride, and bear markets are part of the journey. Think of them as the price of admission. We’ve seen some pretty rough ones, like in March 2020 when the S&P 500 took a 32% nosedive in just a month. But we bounced back, and a bull market took over until the end of 2021. Then 2022 hit us with another bear market. Inflation is going wild, the Fed is hiking rates, and we’re expecting a slowdown in corporate earnings and consumer spending. The Fed’s aggressive rate hikes even caused the Silicon Valley Bank to collapse, putting the global economy at risk!
The worst bear market we’ve seen was from October 2007 to March 2009, when the S&P 500 fell by 57%. It took about five years to recover from the 2008-2009 Global Financial Crisis. On average, bear markets see a 37% decline over 380 days.
Losing time due to financial loss is the real kicker. Imagine what you’d give to live five years longer, or to spend five more years with your child. For many, that time is priceless.
So, how do we survive in a downturn? Preparation is key. With stubbornly high inflation, a Fed that’s reluctant to cut interest rates after 11 hikes, and a frothy stock market, another bear market could be just around the corner.
Here’s a checklist to help you thrive in a bear market:
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Have enough cash to last through a downturn. Since 1980, bear markets have lasted between three months and 2.1 years. Aim to have enough cash to cover three to 36 months of living expenses.
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Diversify your portfolio to match your risk tolerance. Understand the historical returns for various compositions and be okay with the potential ups and downs.
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Write out your investment objectives. This will help you understand your time horizon and better match your risk tolerance.
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Run a Financial SEER Analysis to quantify your risk tolerance. This will help you understand how many more months you need to work to make up for potential investment losses and adjust accordingly.
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Maintain strong work relationships. Those who are disliked or perform poorly are usually the first to be let go during a downturn.
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Have at least one alternative source of steady income. This could be a side hustle, dividends, or returns.
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Collect on outstanding debt now. Defaults skyrocket during a recession, so it’s best to collect when times are good.
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Check in with your tenants. If you’re a landlord, make sure your rental properties are being managed like a business.
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Reconsider your safe withdrawal rate during a bear market. If you’re retired, see if you can reduce your withdrawal rate and still live comfortably.
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Don’t retire until things get really ugly. It’s more dangerous to retire in a bull market because we tend to withdraw more aggressively when times are good.
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Don’t forget to enjoy life. If you’ve made significant gains, consider spending some of your profits.
Remember, bear markets don’t last forever. The stock market has made money 95% of the time over rolling 10-year periods since 1926, and 100% of the time over a rolling 20-year period.
So, there you have it. A comprehensive checklist to help you survive the bad times. Stay on top of your finances, keep learning, and make the most of everything.
