Tips for Surviving a Snarling Bear Market

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Editor's Note: This story originally appeared on NewRetirement.

A month ago I went solo backpacking on the Lost Coast, a 26-mile stretch in Northern California where the rocky shoreline meets the steep base of the King Mountain Range. The strip of rock and sand between the ocean and the mountains is very narrow, and there are long sections of the trek that can only be traversed at low tide. You only have a few hours to get through these “no pass” zones.

On my second day out, I woke and broke camp at the break of dawn to get through one of these zones. About two and a half miles through a 5-mile stretch, I heard a rock slide on the steep cliff just ahead and above me. I looked up and saw a black bear attempting to zig-zag down the slope.

Our eyes met. We both froze. And, I quickly weighed my options. I could 1) retreat and not be able to get through the no-pass zone or 2) calmly proceed. I opted to keep calm and carry on and (to my great relief) the bear opted to scramble back into the forest.

Likewise, you can stay calm and carry on when the stock market wobbles and retreats. Here’s information and guidance for surviving a bear (market) attack.

Carry On and Let the Bear Retreat

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Whether my decision was the right protocol for a wild bear encounter is questionable. However, it is absolutely the perfect metaphor for facing a bear market. Stick with your long-term investment plan.

The bear market will eventually retreat, and your losses will be recovered in due time.

If you sell, then you will experience actual losses. Stick to your long-term plan, and your money will almost certainly recover and gain value over the long haul.

What Is a Bear Market?

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Put simply, a bear market is when a stock index falls 20% or more from its peak.

Bear Markets Are Normal

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As disconcerting as it might be, it is perfectly normal to experience a bear while backpacking. And, while market downturns are also troubling, they are also a completely ordinary part of the economic cycle.

In fact, since 1932, bear markets have happened approximately every four years.

And, they have always, always recovered their losses and gained additional value.

How Long Do Bear Markets Last?

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Bear markets are triggered by changes to interest rates, inflation, general economic woes, and also geopolitical events. However, most downturns are complicated and often involve multiple factors.

The longest downturn (308 days) occurred after the Dec. 7, 1941, attack by the Japanese on Pearl Harbor. But, the average time to recover is around 45 days.

It may come as no surprise that the worst bear market of all time occurred around “Black Monday,” the day of the Wall Street Crash of 1929, which contributed to the start of the Great Depression. Stocks did not regain their peaks until 1954, two decades later.

(The good news? We’ve learned a lot about monetary policy since then and are better equipped to move through bear markets quickly.)

Blink and You’ll Miss the Recovery

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Stock market recoveries will happen before you realize it. It is dangerous to try to time buying and selling stocks to time the market.

You might be surprised to learn that the stock market’s best trading days typically occur within two weeks of its worst days.

Bear Markets With and Without a Recession

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There are two types of bear markets: those that overlap with a recession and those that don’t.

According to Ben Carlson, director of institutional asset management at Ritholtz Wealth Management (hear him on the NewRetirement Podcast), since 1928, 14 bear markets happened during recessions and another 11 bear markets since 1928 had nothing to do with recessions.

Bear markets that occur outside of recessions tend to be shallower and shorter. Economists disagree about whether we are currently in a recession or not.

Facing a Bear Market? Be Cautious With Big Financial Moves

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For the vast majority of investors, especially those who have a long-term investment strategy, doing NOTHING when stock markets go down is the BEST policy.

The stock market goes up and down in the short term. Over the long haul, it has historically done nothing but go up. Even a worst-case one- or two-year contraction of the economy will likely eventually rebound.

So, most of the time, it is important to remain calm, don’t let emotions or stress take over and just carry on. Ignore it.

Need Support? Talk to a Professional

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If you are considering any moves, you may want to consult with a Certified Financial Planner.

You can collaborate with an adviser who has taken a fiduciary oath and specializes in retirement to:

  • Evaluate your situation.
  • Help you upgrade your stock portfolio.
  • Develop an investment policy statement, defining your investment goals and strategies for achieving those objectives.