The Bear Market Has Finally Arrived. Here’s How to Survive and Thrive.

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The bear market has finally arrived, and it’s time to batten down the hatches and protect your investments. In this video, I’m going to show you how to survive and thrive in a bear market.

Hey, my name is Matthew and I’m here to talk to you about the bear market. Many people are freaking out right now, but don’t worry, I’m going to show you how to make money in a bear market. It will not be easy, but with the right strategies, you can come out on top. So stay tuned because I’m going to break it all down for you in this video.

With the S&P 500 over 20% off its peak, and tech stocks down, your first task is to take a deep breath and assess your risk.

Investors need a fresh strategy—or perhaps a refined version of the old one. The stock market rally that had been boosting retirement fund balances sputtered early this year, but it came to an abrupt finish on June 13. That’s when the S&P 500 entered a bear market, which is defined as a stock.

The 1990 bear market met the S&P’s old criteria, which relied on intraday trading.

So, for many investors, it’s probably felt a lot worse than that recently—and it has for some time. The handful of mega-cap tech stocks that fueled the entire market’s takeoff have fallen much harder since January 3’s peak, with Meta Platforms dropping over 50%, declining 39%, and Microsoft, Apple, and Google off over 20%.

If you widen the lens to include cryptocurrency … well, there’s a lot of pain out there. All these declines and dislocations can make us more emotional investors, whether we realize it or not. 

We feel losses more severely than we feel gains, and this has an impact on our investing behavior. The fact that the S&P 500 index fund has dropped 20% may be quickly overshadowed because the index has returned, with dividends, almost 70% over the previous five years.

If you’ve been investing in a diversified portfolio for years, there’s no need to be beating yourself up over any major errors right now. The greatest reaction to a bear market may be to keep following your strategy. You’re buying stocks at least somewhat cheaper today if you continue to invest a part of your pay each month.

However, if you’re feeling uncomfortable and are motivated to examine the make-up of your portfolio and the amount of risk it holds, you may be on to something (although perhaps nothing too serious). It’s a great opportunity to evaluate whether you truly feel at ease with the danger and whether it will profit you well over many market cycles.

It’s difficult to keep a level head during a bear market, but it’s important to remember that this too shall pass. In the meantime, here are some strategies to help you survive—and even thrive—amidst the chaos:

Consider whether you’ve grown too reliant on a single sector or a cluster of hot stocks. The past several years have shown how much investors placed their faith in technology companies. Even after the dramatic fall, the top five technology-driven equities on the S&P 500 account for almost 20% of market capitalization-weighted index.

Many investors—especially those who pick individual stocks—made even bigger bets. They became understandably devoted to popular stocks such as Tesla Inc. that had delivered large gains for them, a phenomenon known as anchoring in the world of behavioral finance. “You basically think the company will only go up, and you lock yourself into the position and put blinders on,” says Dave Alison, of Alison Wealth Management. “People make a big mistake by not taking gains along the way, and when a stock crashes 30% or 50% they kick themselves.” 

The portfolio manager asks the client to set a maximum amount of their portfolio in dollars they want associated with the stock at this time. The customer agrees that whenever the value reaches above that, he may sell and diversify into something new.

In theory, as growth stocks rose and rose and rose, investors could have systematically taken gains and moved that money into value-style stocks, which were longtime laggards in the bull market. “You’d still participate in the growth style, but you reduce your risk while building more ballast in value, and now you have smoother volatility and not so much excess in any direction,” says Alison. The Vanguard Value ETF is down 9.5% for the year, while the Vanguard Growth ETF has fallen 32%.

If you still have a lot of money in tech stocks, you might not want to sell them right away since they are now cheaper. However, consider reducing the dominance of your portfolio’s remaining sectors. Energy shares on the S&P 500 have returned over 50% this year, fueled by the supply shock caused by pandemic lockdowns.

Giving up on making all-or-nothing choices is one approach to cope with long-term market uncertainty and reduce volatility. You may be torn between taking a loss or keeping a profit.

“Sell half of your position if you’re ever in doubt or if your brain is suggesting, ‘What if I just keep holding this stock for a few more days?,’” says an advisor in New York. “You’re a genius if the market rebounds because you haven’t sold it all, and you’ re a hero if it falls because you’ve taken some profits. You’re not a complete idiot in either case.”

The next step is to make sure you’re diversified. A mix of equities and bonds still provides important ballast for your portfolio. But let’s not kid ourselves: Bonds are suffering in this stock market downturn, too. Inflation and interest rates have been negative for bond prices, sending the Bloomberg US Aggregate bond index to over 10.

For investors who hold investment-grade bonds directly, rather than in a fund, the agony of this situation may be reduced by not having to look at the current losses. “While your bond share of your portfolio is down, you have a legal obligation with the issuer and will get paid the entire face value of your bond when it matures.

Investors in bond funds can see their existing losses more clearly since the declining market prices of bonds are reflected in a fund’s return. The good news is that, while bond prices fall across portfolios, yields they are paying are finally rising from rock-bottom levels. This increases the case for bonds as diversifiers today.

A Series I savings bond from the US Treasury is one fixed-income investment that provides an effective hedge against price inflation. The bonds must be kept for at least a year, and cashing them in before five years results in the loss of three months’ worth of interest, but the current yield on the bonds, which may be purchased

The interest rate is updated every six months under the inflation rate and is reset. There’s just one minor problem: there’s a limit to how much you can acquire each year.

Real estate investment trusts and international stock and bonds are additional sources of diversification over time. However, during this tumultuous year, none of these have protected us from losses. Investing broadly improves your chances of finding some bargains right now while also reducing future returns.

“During the early phases of a bear market, it’s a ‘take no prisoners’ situation, and everything is hit, including diversifiers,” according to Rob Arnott, founder of the asset management firm Research Affiliates and co-portfolio manager on the Pimco All Asset Fund. However, over time, the Cryptocurrencies were touted as a possible hedge against a collapsing economy and inflation. The truth has proven to be far less glamorous, with tokens trading considerably more like risk assets than safe havens. Bitcoin has fallen 65% from its November highs, while Ethereum has plummeted 73%. Whatever your thoughts on crypto are, consider it more as a speculative bet than a safe investment.

What about hiding in cash? It’s a terrible idea as a timing strategy since most individuals, including professionals, are unable to correctly predict when markets will change. However, having a substantial sum of money on hand is a good idea during this bear market, which serves as a reminder that many people in retirement or approaching it should have some cash saved up

If you’ve been out of work for a while, your savings will take longer to recover than it would for a younger investor and having to sell into a depressed market might harm your nest egg permanently.

For individuals who are still employed, cash wealth advisor Alison suggests three to six months of liquidity in cash, but if someone is retired, he recommends a year’s worth of income. “Cash” doesn’t imply just money in the bank. It might be possible to borrow against the value accumulated in permanent life insurance for an emergency or access liquidity available through a home equity line of credit.

Of course, one of the best diversifiers is time. If you’re a long-term investor with a decade or more until retirement, you can weather this storm and emerge on the other side with a portfolio that’s hopefully grown in value. This is one reason why it’s important to save early for retirement, so you have a longer time horizon to take advantage of market growth.

It’s difficult to watch the value of your portfolio decline, but it’s important to remember that markets are cyclical and eventually they will rebound. In the meantime, focus on diversifying your assets and making sure you have enough cash on hand to cover expenses. This will help you weather the storm and come out the other side in better shape.

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