Lessons From The Wild: How To Meet A Market Bear
As of May 31, 2022, we are officially still in a bull market. However, May saw a few days where the S&P 500 intra-day trading dipped below 3,837.25, down 20% from where it peaked at the closing bell on January 3, 2022, at 4,796.56. If any trading day closes more than 20% lower than its previous high, that signals the start of a new bear. For those with shorter time horizons or who rely on their portfolio for retirement income, a bear market can feel threatening. Fortunately, there are action steps to avoid calamity and ease uncertainty.
What To Do If You Meet A Bear
Just as wilderness explorers are likely to encounter bears along their paths, so will investors. We cannot hide and avoid them altogether. Let's apply the same logic as if you encountered a bear in the wild.
- Don't panic - Stay calm. Our fight or flight response will kick in when facing intensely stressful situations (like seeing a bear on your walk). The physiological reaction is helpful in cases where the danger is life-threatening. However, most bears do not want to attack you, and market bears will certainly not kill you. If you feel sweaty, your heartbeat is quickening, or you are shaking, remember to breathe and think through the next step.
- Name your bear - Upon meeting a bear in the wild, a park ranger will tell you to talk to the bear. Introduce yourself to acknowledge its presence and prove you are human and not prey. While we don't need to talk directly to our market bears, maybe giving him a name like the Weather Channel's storms will make him less scary. Would you be afraid of a bear named Adam Smith or John Maynard Keynes?
- Stand your ground and then move away slowly (or let the bear leave first) - Never run! If everyone hears "bear" and starts running, this will trigger the bear to run after you. So instead, back up, move sideways, take a detour, or wait until the bear decides to move. Your stock market bear encounter might trigger you to take action by rebalancing your portfolio, investing more, or do nothing and just wait until it leaves.
How To Prepare For A Bear
Before heading to the mountains, prepare a few things to help reduce your likelihood of a bear attack. These same preparation strategies will also help you be ready for your market bear.
- Know where to put your food - if you leave food in a tent, a bear will smell it and come looking for it. The same rule is valid for market bears. If you need money to buy essentials like food and housing, don't leave it where a market bear can get it.
- Carry bear spray - if a bear attacks, pepper spray is your best defense against an aggressively charging bear. A fiduciary investment advisor can act as your stock market bear shield. While the market bear will do what it wants, there are three distinct advantages of working with an advisor during down-market periods.
1) Your financial advisor defensively manages your portfolio before market bears (so the bear will not get your food).
2) You won't panic (let your trusted advisor be your guide).
3) Let someone else spray the bear for you. The worst thing you could do when facing a charging bear is to spray pepper spray in your own eyes by accident. If it is your first time trading during a market bear, the fear of making a mistake might lead you to err. Ask your trusted advisor when and where to rebalance your portfolio on your behalf.
For individual investors, making decisions as we approach a bear market can feel like going on a hike in the mountains without a guide. For two decades, the Hurlow Wealth Management Group has helped clients identify appropriate investing strategies for good times and bad by evaluating income needs, ability, and willingness to take risk and then creating and implementing personalized financial plans. This process allows individuals and families to find clarity, feel confident, and achieve comfort through appropriate risk management associated with investing. If you need help, schedule a FREE consultation with one of our professional investment advisors to get started preparing your portfolio to meet the next market bear.