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Navigating Investing Through a Bear Market Correction
To say 2022 has been a tough year for investors would be an understatement. As of this writing, the S&P 500 is down over 20% from the beginning of the year. There are several factors that have contributed to this: the global economic slowdown, the Russian/Ukrainian war, falling corporate revenue and earnings, supply chain disruptions, and the strong dollar, but the most impactful event has been stubbornly high inflation. These conditions, which result in market declines, can trigger emotions of fear and concern among investors. The important thing for investors to remember is that history has shown the stock market recovers from these dips. One of the most important aspects of navigating a bear market is understanding the kind of investor you are and developing an investment plan which will allow you to stay the course. Leon Cooperman stated, “In a bear market, he who loses least wins.” Here are some considerations to keep in mind: • Aligning your investment goals, liquidity needs and risk tolerance to your investment plan is essential. • If you can, continue to make regular contributions to your portfolio through a process called dollar-cost-averaging. This is a process that can be especially beneficial in down markets, as you will end up purchasing investments at lower prices. • Never lose your perspective. As mentioned earlier, markets historically have bounced back nicely from bear market corrections. Try to approach them in a calm manner and take advantage of these downturns for your own benefit. • As previously mentioned, look at corrections as opportunities to purchase stocks, ETFs (exchange traded funds), and mutual funds at lower prices. • Work with your Financial Advisor to ensure your portfolio is diversified. Often when one industry is down, another is doing well, and diversification allows you to benefit from this. • If you are taking periodic distributions from your portfolio for income and have excess cash that is uninvested, consider “turning off the spigot” from your portfolio and drawing your regular “income” from your cash reserves until the portfolio has had a chance to recover.
“Most successful investors, in fact, do nothing most of the time.” – Jim Rogers
Remaining invested in a bear market can feel uncomfortable, but as one of our favorite bloggers, Ben Carlson, CFA, recently said, “Sometimes you simply need to have a little faith and a lot of patience.”
