If you have ever had the opportunity to visit Yellowstone National Park, you know that in addition to its beautiful landscapes, it is also home to a variety of wildlife, including bison, elk, and, yes, bears. While you may or may not have seen a bear during your visit, your chances of facing a bear market during a lifetime of investing are certain. The bear market we are experiencing today is not my first, nor will it be my last. And as Zach Ivey, CFA, CFP®, ChFC® stated in his most recent Financial Friday, while bear markets are not uncommon, they tend to feel different each time. As such, managing emotions is key to investor success.
Just as the Park Service provides tips for what to do if you encounter a bear in the wild, you can also take similar steps during encounters with bear markets.
Stay calm and remain still.
While your first instinct upon seeing a bear might be to RUN, the best strategy calls for standing still. The market has been resilient. It has seen wars, pandemics, financial crises, and other events, to name a few. Investing requires patience and discipline. Running or selling today could possibly do more harm. Stay the course recognizing that this bear will go away in time.
The National Park Service suggests slowly waving your arms to identify yourself as a human (and not prey) to a bear. Unfortunately, waiving your arms will not do much during an encounter with a bear market other than perhaps providing a little exercise. However, examining your goals and focusing on the items within your control is essential. For example, you can change how much you spend/save, or you may have some control over the duration of your employment. Your financial plan includes a stress test of demanding market environments. It may be helpful to revisit your strategy. Someone once said, “worry is like a rocking chair; it gives you something to do but never gets you anywhere.” Worry little about things outside your control and focus instead on the things you do control.
Bear markets are a natural occurrence of long-term investing. The best response is to remain calm and stick with your plan. If you need a visual, consider this dog’s approach to a bear encounter – focused and moving forward. If you want help obtaining confidence and clarity in your financial life, reach out to a Bridgeworth advisor today.
Investing strategies, such as asset allocation, diversification, or rebalancing, do not assure or guarantee better performance and cannot eliminate the risk of investment losses. All investments have inherent risks, including loss of principal. There are no guarantees that a portfolio employing these or any other strategy will outperform a portfolio that does not engage in such strategies. Past performance does not guarantee future results.
An index is a portfolio of specific securities (common examples are the S&P, DJIA, and NASDAQ), the performance of which is often used as a benchmark in judging the relative performance of certain asset classes. Indexes are unmanaged portfolios, and investors cannot invest directly in an index. Past performance does not guarantee future results.