By Craig Erwin, Ph.D.
After the recent rally, some think the bear market in stocks is over, but it doesn’t matter to me because I just keep buying more stocks in bear and bull markets. According to Fidelity, a bear market is “a price decline of at least 20% from a recent high”. Stocks fell hard in the first half of the year, but were clawing back much of the ground they lost until the brutal week that just ended.
Most of us will be pretty excited If the prices of our stocks get back to where they were at the beginning of the year. But, no matter how much your portfolio was worth previously, if it’s diversified (i.e., contains a variety of investments), the next bull market is likely to push its value substantially higher.
A bear market drives many investors to sell everything out of fear. Don’t sell! If you hold on, you may eventually see impressive gains. And all you have to do is nothing. Don’t trade; just wait and do nothing. Of course, buying more stocks during a bear market will give your portfolio a big boost when markets recover since you bought those stocks at sale prices.
In the early 2000’s, there was a brutal bear market. Most people’s portfolios were decimated, including mine. What did I do? I held on tight, not selling anything, and I increased my biweekly 403b contribution, knowing I was paying much lower prices for stocks than I had when the market was at all time highs. When the bear market ended and the new bull took off, my portfolio took off too.
When a bear market hits, it is natural to want to sell everything and sit in cash until the bear ends. But that is likely to be a bad approach. When a bear market ends, a new bull market may take off fast. It’s dangerous to sit in cash because it’s often not clear when a bear market ends, and even if it is clear, you may be too fearful to get back into the market. By the time you get the courage to resume investing, the market may have risen a great deal and you may have missed out on much or all of the rally.
So don’t miss out. Keep investing come rain or shine; that will make your portfolio grow handsomely in the long run. Those stocks you buy during a bear market may blossom beautifully during the next bull market. The stock market’s long term trend is up. Don’t bet against it.
Are you worried about the economy or the stock market? Are you brave enough to invest during a bear market?
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