Learn to love the bear

When the markets go down, it’s known as a ‘bear’ market. Bear markets happen. They aren’t rare.

This data from Vanguard shows there have been five since 1980.

Bears aren't rare

Bears aren’t rare

Grrr, scary bear?

Bears can cause investors to worry. 

They look at the money they invested last year and see its value has dropped (they ignore the money they invested, say, five years ago that has gone up). 

They want to see the market going up before they are willing to invest anymore (they ignore the fact that a low market is the best time to buy).

If you have cash, the best time to invest is now!

Timing the market is futile

Trading daysAs you can see, the best trading days normally come soon after the worst trading days. 

Trying to time the market is futile.

We’ve written about this before, such as in our 2016 article: Ticka-ticka-ticka-ticka-timing.

Why stay the course

This example uses US data from 2018/19, but it demonstrates the point.

Stick with it

If you decide to invest in cash rather than stocks, it will generate lower growth, especially if you get ‘locked in’ at a low point.

If you come out of the markets and go back in, it’s better.

But, when you ride the rough periods and stay put, you get the best results.

Controlling your emotions

In the book A Wealth of Common Sense: Why Simplicity Trumps Complexity in any Investment Plan, author Ben Carlson writes:

Over decade-long time horizons, your investment performance will mainly be derived from how you handle corrections, bear markets, and market crashes.

During every single bear market, there will be times when you will wonder if the losses will ever stop. You will always wonder how much lower the market can go. The economic news will be terrible. Other investors around you will be depressed. Pessimism becomes pervasive.

He goes on to say this:

Having the discipline to stick with a good plan even when it doesn’t feel right is an underappreciated skillset.

The point is not to predict every bear market or crash but to psychologically prepare for them ahead of time. Knowing this event can and will occur is half the battle because you will have to set up your investment plan to take this into consideration.

What this means to you

Relax! This bear market is nothing new. 

  • We control what can be controlled, that is, choosing low-cost funds. This minimises your expenses and maximises your return
  • We keep your portfolio diversified
  • We hold annual meetings to track progress and review your attitude to risk

It’s the same message we often repeat – We have a plan. Stick with it. Stay the course and it’s all going to be OK.

As they’d say on Dad’s Army: “Don’t panic, Captain Mainwaring!”

Lance Baron

Certified Financial Planner (CFP) based in East Sussex, UK. We support people in Southeast England with more than £500K to invest by building a financial plan that will help them live the life they want… until age 100