by Michael Antonelli, Managing Director, Market Strategist, Baird
For all recorded history, humans have been asked to do two things that are often at odds—Survive and Thrive.
Survival, on a day-to-day basis, is required for a species to avoid extinction. When danger presents itself, we must overcome it or face oblivion.
But if we ignore thriving, we cannot grow and flourish as a species. We must do both at once — even when we’re struggling.
It’s the same for investing.
We are in a bear market right now and bear markets are painful. They last, on average, about 330 days. They fall, on average, about 32% from their peaks. They return to their starting point, on average, in about 1.7 years. Those are averages; bear markets can be better or worse, but you must survive them.
Why is this one so bad? Because of the US Federal Reserve and their fight against inflation. Ben Carlson of RWM said:
“They want the stock market to go down. They want people to lose their jobs and make less money. They will take the economy down if they have to so prices will stop rising.”
If the most powerful entity in the financial world wants the stock market to go down (to crush inflation) they are going to make it go down.
How do you SURVIVE a bear market? Here are 3 things to focus on:
- Cash. Are you cash needs met? Do you have a sufficient pile to cover your bills that are due without having to touch long term assets? My friend Morgan Housel says “cash is the oxygen of freedom,” and it’s one of the only things I know that helps investors sleep better at night.
- Plan. Is your plan updated for current market conditions? Have you simulated what a bad bear market would do to you and your goals? If not do it, so you know what a worst-case scenario does to your financial life. If you don’t have a plan, get one.
- Behavior. Focus on your game and your behavior then ask yourself, how did I act the last time the market fell apart? Are there any regrets you have from 2020, 2018, 2011, 2009, or 2000 about how you navigated those bear markets?
There are certainly more ways to survive a bear market but I want to turn our attention to how we can THRIVE in a bear market. Here are a few thoughts:
- Look for opportunity. For the longest time there was no yield to be found for investors; now it’s everywhere. A 2yr Treasury note yields 4.3% (as of this writing). TINA (there is no alternative **to stocks**) is dead. When this is over, and it will be one day, did you take advantage of every investment opportunity available to you?
- Remember your purpose. Why did you invest in the first place? What was the purpose of this money? Bear markets come and go; there have been 11 in my lifetime, but they don’t change the purpose of why I’m here and why I’ve invested.
- Live. Look, I get it. Stocks are down, bonds are down, prices are high, and uncertainty abounds. But you must live. Tend to family, see friends, go on the occasional vacation, spend time with your spouse. Find beauty in the world. At the end, the only thing anyone wants is more time. Don’t waste it.
The challenges we face in life make us who we are. They define our existence and surround us every day. Surviving and thriving are two sides of the same coin.
The worst thing you can do is assume bad times will continue indefinitely—just like it’s dangerous to assume good times will last forever. Booms plant the seeds of busts like the one we’re in now… but busts also plant the seeds of booms.
We will get through this challenge, like we’ve come through every other challenge we’ve faced. If you focus solely on surviving at the cost of thriving, you will be harming someone you hold dear: your future self.
Copyright © Baird
All investing carries risk and past performance is no guarantee of future results
