Bear Markets...What's an Investor to Do?
If you’ve been listening to the financial media of late you have no doubt heard some of the so-called experts prognosticating on the prospect of the next big bear market. Unquestionably, the stock market is at another crossroads and its 7 percent increase year-to-date belies the concerns that most people have over the global economy. So, gloom and doom forecasts by a media anxious to sell papers or air time, should not be at all surprising. Even if we were to buy into the media hype, should we be at all concerned? In the overall scheme of things, should bear markets even matter to us? How does the next bear market effect your retirement plans? The market has been on an uptick for nearly 8 years since the last major correction, when it dived a negative 38.49%. So how do you prepare for the next correction?
Bear Markets are Healthy for Long Term Returns for the Savvy Investor
We submit that the only thing about bear markets that should matter to investors is how they react to them. First, no one should be surprised when a bear market occurs. They happen with some regularity. While we can’t really predict when they will occur, we know that they will. And we also know that they will eventually give way to another bull market. In fact, there have been 23 bear markets in the last 100 years, each followed by a bull market.
But here is the more important factoid that investors need to know. The average duration of a bear market in that time period is 11 months as compared with the average duration of 32 months for the bull markets. More importantly, the average decline of the bear markets is 27 percent while the average increase of the bull markets has been 119 percent. So, even with the same number of bear markets as bull markets, the stock market has still advanced more than 100-fold since WWII. A huge concern for anyone approaching or in retirement is the recovery time of the stock market crashes. A few notable crashes and recoveries: 1929-32 Dip:89%, Recovery:22 years. 1939-42 Dip:40%, Recovery:3 years. 1973-74 Dip:45%, Recovery:8 years. The takeaway for smart investors is that you don't have to participate in the bear market, if you've positioned your assets in a Private Reserve Strategy that is outside of the market, while still getting the upside movement and none of the downside slide. In that perspective, bear markets are nothing more than a temporary interruption of a longer term uptrend.
For long term wise investors, bear markets are healthy and necessary, without which there would be no rise in the market to generate double digit returns for the savvy investor that has not put all his eggs in the stock market roller coaster. Investors with foresight and open mindedness to investigate financial platforms outside of the stock market status quo will be rewarded with significant gains while having protection from the next market crash.
There is no need to succumb to the noise and the hype. With history as our guide, investors can apply common sense financial planning as a key weapon against the media hype and self-serving platitudes of stock brokers and mutual fund managers:
If you're as risk adverse as I am and still want a decent ROR, without losing money along the way, you must have results, not empty promises, educated guesses, or even reasoned hope. In other words, not the kind of stuff you get from mainstream advisors. An investment house or mutual fund broker cannot guarantee results, no matter how articulately they try to convince you otherwise.
While stock and mutual fund investments hope for an outcome by taking images from the past and projecting them into the future, insurance contracts with contractual guarantees are unconcerned with the nauseating ups and downs of the stock market and focus only on 100% protection from risk and defined future deliverables.
Savings and investments do not have to lose money, nor should they. Invest accordingly.