Staying Safe Around Bears

The S&P 500 recently breached bear territory, which is largely agreed to be a market that has dropped 20% from a recent peak. It’s common to see some retracing. The “bear-market bounce” is real.

However, even if the market recovers a bit, it will take some time, good sentiment, and real economic progress for performance to climb from bear to correction to neutral to positive.

In the meantime, outside of a short, sharp drop in 2020, we haven’t seen this volatile market since, you guessed it, 2008.

Driven by inflation, global uncertainty, supply chain issues, and rising rates – economists are predicting a recession in the months and years ahead. Some are even saying we’re in a recession now.

With a bear market, and 20%+ drops in the market, comes a wave of emotions: Stress, sadness, and anxiety. The list can go on and on.

The National Park Service has a lot of advice for safeguarding yourself when you encounter not-Smokey out in the wild. And much of it is based on psychology and managing your own fear, so that you stay in control of yourself and the situation.

We’ve borrowed from that playbook to give you tactical pointers in navigating bear markets, volatility, and turbulence.

First, Assess the Realities

Looking at the latest Consumer Sentiment, people are not feeling good about where things are headed. And compare that to the inflation data, things are getting stormy.

  • The annual inflation rate for the United States is 8.6% for the 12 months ended May 2022, the most significant annual increase since December 1981.
  • As measured by the University of Michigan, on the other hand, consumer sentiment is at a record low of 50.0. This marked the lowest level on record data for the series, which spans back to the mid-1970s.

With all the uncertainty, negative emotions can be triggered significantly. And emotions can impact decisions. They can also dominate them, which can lead to drastic decisions that are knee-jerk and reactionary. Overstating the risks can mean you increase your peril, instead of mitigating it.

Stay Calm

  • Remove yourself from external stimulus: Find yourself doom scrolling through Twitter? Checking your portfolio every day? Or opening MSNBC? Try turning them off. If you’re invested for the long-term, what you see today, tomorrow, or next week will not significantly impact your strategy – so don’t give it the attention it doesn’t deserve.
  • Don’t make any decisions in the moment: Thinking about making a more significant investment decision? Take a step back, sleep on it, and leave it alone for a few hours. See if you still feel the same way after taking some time away from the decision.

Make Yourself Look Big

  • Get your ducks in a row with your emergency savings: In the chance you’ll need it, now’s the time to boost it up to levels that can sustain you for 3-6 months. Turn on automatic transfers or increase the amount being transferred.
  • Review your financial plan: Whether it’s with your current advisor, or consulting with an expert, now is the time to take a step back to understand your long-term goal. You need to shore up your financial position so that the important things stay on track. That may be revising budgets and putting some spending on hold for now, so that you can keep adding to retirement/college savings/healthcare savings accounts.

Move Slowly

  • Think about diversifying your portfolio: While in a bear market, it’s easy to see red on every investment screen you open. And you’ll never know what may impact the market more. That’s why a well-diversified portfolio across asset classes, sectors, and companies is key.
  • Don’t disengage: Yes, we said remove yourself from the external noise, but that doesn’t mean you should shut it down completely. It’s important to stay proactive with your plan and your ability to create more income for yourself and your family. Assess your career, side hustles, income streams. Don’t make sudden moves, but where you can make incremental changes to keep things moving – make a plan and implement in a thoughtful way.

The Bottom Line

Remember, bear markets are regular, and they don’t last forever. There have been 26 bear markets in the S&P since 1928. The average length of a bear market? 289 days or about 9.6 months. The average length of a bull market is 991 days or 2.7 years. Which provides some perspective on why, over the long-term, markets go up.


The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.

This content not reviewed by FINRA