By Craig Erwin, Ph.D.
Years ago I complained that the stock market just kept rising and never seemed to fall. My friends celebrated the market’s endless ascent, but I wanted a crash. Why? Because we often make more money during bear markets than bull markets.
According to Investopedia.com, a bear market occurs when stock prices fall 20% or more. Most investors hate bear markets. In contrast, bull markets occur when stock prices rise or investors expect them to rise. And most investors love that.
Why do we often make more money in bear markets? It certainly doesn’t feel like it, with prices of the stocks we own falling lower and lower. But bear markets make it possible to buy stocks at low prices, with bargains everywhere. And when stock prices bounce back, many stocks that you bought during the bear market will be worth much more than you paid.
Although most investors love bull markets, they pay much more for stocks during bull markets than bear markets. I would much rather get a bargain than pay full price, especially if that bargain is likely to be worth much more than I paid for it in the future.
A few years ago, I had just one wish. I dreamed of just one more bear market before I retired. I knew that would set me up for retirement by enabling me to buy stocks on the cheap. And when the next bull market came, many of those cheap stocks would climb to new highs, swelling my portfolio and leaving me in great financial shape to retire.
So, how do I make the most of a bear market? It’s easy. By increasing the amount I save and invest in stocks. When a bear market hits, I increase the amount I contribute from my paycheck to my retirement savings plan as much as possible and invest it all in stock mutual funds (preferably index funds, which have the lowest fees). Then I hope and pray that the bear market lasts as long as possible. And when a new bull market starts, my portfolio will grow beautifully as stock prices rise.
But what if the bear market never ends? That has never happened, and never will, as long as there is a stock market. So, take advantage of this bear market while you can because it may be years until the next one comes, but for now the bull is out there somewhere, impatiently waiting its turn.
Are you brave enough to invest during a bear market? Do you have a retirement savings plan? Is it on track?
For more information on investing, the stock market, and bull and bear markets, click on the following links: