Five Things to Keep in Mind During Bear Markets, Ep #251

Nobody likes to experience the uncertainty that a bear market brings, but it’s an even more challenging experience to weather when you are a recent retiree. It’s easy to lose sight of your goals in a bear market which is why I found an article outlining some lessons that you can remember during a bear market.

Listen to this episode to hear some wise words of wisdom that may help you keep your wits about you during this bear market. Stick around until the end to hear my thoughts on tax-loss harvesting.

Outline of This Episode

[1:42] 5 lessons to remember in bear markets
[9:20] How to use tax-loss harvesting

5 lessons to remember during bear markets

When I came across this article written by Jack Forehand in the Validea Guru Investor blog, I knew it would resonate with my audience. The article begins with a quote by Peter Lynch that is important to keep in mind during difficult times: “People who succeed in the stock market also accept periodic losses, setbacks, and unexpected occurrences. Calamitous drops do not scare them out of the game.”

Stocks are the best long-term investment there is. Even though stocks can be a bit riskier, the long-term evidence shows that, over time, stocks perform better than bonds, commodities, cash, gold, and even Bitcoin. While they aren’t perfect, stocks are the best game in town. Every market dip in history has been a fantastic buying opportunity and I have no reason to believe that that won’t always be the case. The most successful investment philosophy is to buy an ownership interest in the best companies on earth and never sell.
Time is your friend. The longer your time horizon the better you will do in the stock market. When you look at the stock market on a daily basis your success will be similar to the flip of a coin. However, over the course of 20 years, the odds are that the value of your stocks will rise. Many people think that retirement diminishes your long-term investment horizon; however, if you retire at age 60, chances are you will live to 90. That leaves 30 years of growth ahead of you.
Beware of bear market analogues. Try not to rely too much on comparisons to other bear markets. Each bear market is different. Since they have all occurred during different historical time periods, no two are the same.
It’s darkest before dawn. There will never be a clear sign telling you when the bottom of the market will be, that it is safe to invest, or when a bear market is coming to an end. Trying to time the market to exit and reenter at the right time will only ensure that you lose money in the long term. Instead of trying to time the market, build a Swiss Army Knife portfolio with cash reserves and plan to reduce your income when the market gets worse.
Conviction in your investment approach is essential. The most important thing is to believe in your investments. The more that you believe in your investments the more likely you are to stick with them and achieve your long-term goals. Create an investment plan that stems from your goals and takes into account your risk tolerance, then you will be able to resist the temptation to question it when there is a market downturn.