13 Dec The Bear Market?
This record hike in the stock market has been confusing many people, experts or not. This bull market has managed to sustain itself for just over ten years, and even now through talks of our president‘s impeachment, a trade war with our most traded with country, and countless other events. So, when exactly will the next Bear market be? As many of you know, no one really knows. But the only thing that is certain, is that the next Bear market is imminent. Unpredictable and unavoidable, kind of like the weather. A real Bear market can do some serious damage to a portfolio in a very short amount of time. Because of this it is important to be aware and be prepared.
A Bear market is usually when there is a 20% drop (or more) in the price of an asset for longer than two months, in one or more major indices. The last few Bear markets have lasted 10-15 months on average, with major stocks dropping around 30%. The last real Bear market we experienced in the United States lasted from October of 2007 through March of 2009. The Dow Jones industrial average dropped 54% during this time. The typical time to recover from something like this is 22 months. So, keep that in mind when preparing yourself for what is to come when the next Bear Market hits. When will that be? Well, like previously stated, it is never clear.
Bear markets are tough to see coming over the horizon. But there are some tell-tale signs that we use to let us know of the storm to come, inverted yield curves are such an example. Bear markets are also usually accompanied by some sort of bad news in one or more sectors of the economy. A recession, a spike in commodity prices, low employment, rising inflation, asset bubbles, overvalued stocks, raising interest rates, all these things usually go hand in hand with a Bear market. Or, at least, a Bear market doesn’t come without at least one of them.
These changes in the market can be sensed, but never fully predicted. Because of this it is important to be prepared for this, not only with a financial strategy, but emotionally as well. When things start going South and I mean way South, pretty much everyone is tempted to sell off to avoid further losses. This only makes your losses permanent. Warren Buffet once said, “Be fearful when others are greedy, and be greedy when others are fearful.” In other words, the market is going to bounce back, making an educated choice on what to put your money into to make sure that you recover from your losses when the market climbs back into Bull market territories. You must be willing to accept short term losses to secure long–term growth. One way of buffering your portfolio against a sudden Bear market trend shift, is by looking into alternative investments. There are many different investment vehicles you can put your money in that are not correlated to traditional investments such as stocks and bonds. These types of investments will allow you to have more control over where and how you allocate your money with more time than if all your money was in traditional investments.
The future is impossible to predict, but it doesn’t have to be impossible to prepare for. With the right choices and proper planning, you can prepare yourself for whatever life will throw at you. Make sure that you are not only planning for the next Bear market, bur planning to thrive as well. Remember, Plan Smarter & Live Better.