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Investor’s Handbook: Guide To Handling A Bear Market

How should we evaluate the market’s response amid rising oil prices, economic war, inflation, valuation concerns, and ongoing speculation?

Over the last 92 years, stock markets have spent roughly 20.6 years were spent in bear market territory. A bear market occurs when the price of equities falls more than 20% from highs, driven by an overly pessimistic outlook and poor overall market sentiment.

The NASDAQ entered into a bear market this month. The tech-heavy index has been hit harder than others as valuations flew off the handle, with the S&P 500 also flirting with lows.

Managing Mr. Market

There are no two ways about it, it can be a painful process. It’s easy to invest on the way up, it’s not managed so handily on the way down.

But even in hesitant times, it shouldn’t affect our long-term narrative. If you have always been a regular investor, your strategy shouldn’t change now. In fact, as long as fundamentals remain unchanged, it makes more sense to invest at better valuations where possible. And there’s some solace here — just look at the statistics:

  • The S&P rises every 3 out of 4 years. 
  • The average bear market lasts 289 days.
  • The longest bear market occurred during WWII and lasted 535 days between 1940 and 1942.
  • The average decline has been 33% in bear market periods. 
  • It takes 2 years to recover on average. 

Sure, when the outlook is wonderful, it’s easy. Not so much when there’s a multitude of issues. But, if you’ve mapped out a long-term thesis — be it an index investing strategy or a stock-picking strategy — now could be the time to average down and iron out your cost basis. 

Historically, U.S. markets have always rebounded to reach all-time highs, no matter how long it takes. Maintaining a regular investment strategy, or dollar-cost averaging means that when that rebound period comes, your returns will stack up quicker than you think — just make sure you’re investing in the right type of business.

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