Four Essential Reminders When Investing in Bear Markets


We’ve officially entered a bear market. And while that certainly feels crummy, it’s nothing new. Bear markets are every bit as common as bull markets, housing bubbles, oil shocks, tech breakthroughs, schizophrenic digital currencies, and every other economic influencer that can drive stocks higher, lower, or into stagnation. We’ve been here before and we will be here again. So, what can you do about it?

First, second, third, fourth, and fifth – stay calm. Don’t make any rash decisions about money. If you’ve been working with an RAA advisor, or another reliable fiduciary advisor (someone who has worked with you to build a long-term financial and investment plan), stay on course. Simply, do not unilaterally make changes to your long-term investment strategy or portfolio allocation without first talking to your advisor. We understand. It’s extremely difficult when the sky is falling to remain calm – so just remember this: The sky isn’t falling. We are in a storm, and history shows that this storm, like all storms, will pass.

Here are four essential reminders about investing and bear markets.  

1. History tends to repeat (and that’s typically a good thing)

From 1995 through 2021, a period that includes major market declines resulting from tech bubbles bursting, to 2008’s markets crashing, to Great Recessions recessing, and on to the pandemic-induced 3,000-point Dow Jones drop of March 16, 2020 (about 13%), remember – despite everything, the average yearly growth rate of the S&P 500 exceeds 10%.[1]

And while no one can predict the stock market with certainty, remember that each significant crash of the last century was followed by a period of recovery. For example, after the 2008 market crash, the recovery began pretty much immediately and achieved an eventual increase of 178% in 5-years.[2]

These past events underline the importance of focusing on long-term financial strategies and goals, and not on short-term fluctuations. The markets will have bull and bear runs which need time to do what they do without you or me trying to anticipate or respond to short-term trends.

2. Keep saving

Be it in a 401(k), or with your advisory firm, an error that some anxious investors make is to stop saving once the markets begin to slide. On the heels of the 2008 crash, one study found that more than a quarter of respondents either stopped saving for retirement or stopped adding to their 401(k).[3]

That was a big mistake. Between 2009 and 2019, the average 401(k) retirement plan balance rose by 466%. [4]  

If you’re still working, keep saving in your retirement accounts. If you’re a do-it-yourselfer, while I can’t emphasize enough the value and importance that working with a qualified financial advisor can add (as much as 4% or more in annual returns [5]), one way to continue your savings momentum when the markets take on water and nerves are being tested is dollar-cost averaging (DCA). DCA is investing a fixed amount on a regular schedule (e.g., per pay period or monthly) that over time generally results in buying more shares when prices are low and fewer shares when they are high. [6]

3. Don’t move to cash

When the markets slide, ignoring the urge to move to cash (which is basically timing the markets) is something we generally emphasize to all our clients. And while this is obviously true during more typical downturns, right now, with inflation higher than it’s been in 40 years, it’s perhaps truer today than ever before.

That’s because, unfortunately, your cash is losing value by the day.

While the Federal Reserve's June 15th three-quarters of a percentage point interest rate hike was implemented to try and tame runaway inflation, it will nudge returns on savings accounts and CDs up just a bit (and make borrowing money that much more expensive), it will not immediately tame the current cash woodchipper that is inflation. Looking back a month, if a one-year CD has been paying you 1.5%, with May's inflation rate coming in at 8.6%, money in that CD still recently lost 7% of its value. [6]

4. Ask if your asset allocation needs updating

It’s always a good idea to meet with your advisor and make certain that your investments still align with your needs and time horizons. Call. Email. Schedule an appointment. It would be my overarching hope that you and your advisor have a conversation that places the current market and economic turbulence into perspective.  

Remember, because the markets have trended upward for such an extended time, the blips, and tumbles (such as in March of 2020) have been few and far between and relatively short lived. That is, they are easy to forget because things generally rebounded before the reality of what happened had a chance to sink in.

I often say this, and it is truer at this very moment than at any other: The #1 value we bring to clients doesn’t come in the form of investment returns or money saving tax planning or budgeting or even plotting distributions (or any of a dozen other technical, financial, or economic decisions). While those things are vital, none is the single most important thing we do. The single most important asset that we provide to clients is that during times like these, we help them resist the urge to make emotional or behavioral financial mistakes from which they can’t recover.  

So, how long is this likely to all last? It could end tomorrow. Or it could last years. Don’t make that your only consideration. Since 1945, from beginning to end, it has taken bear markets on average just slightly longer than a year to move from high point to low.[7] (With the market hitting its all-time-record high on January 4th, 2022, we are now almost six months into this downturn).

Once the downturn begins and officially becomes a bear (a loss of 20%, or more), as it has now, it has historically taken about two years to reclaim the ground that was lost. After that, the market has gone on to set a record high every single time. Remember, if you sell now, you just locked in your losses.

No one … not you, not me, and not your next-door neighbor, no one likes the uncertainty and anxiety caused by a market downturn. Add to that, inflation, the vestiges of this never-ending pandemic, the war in Europe, and a lot of other political uncertainty and division, and, yes, it’s stressful. Get outside and breathe some clean air every day. Remind yourself that we’ve been here before. And speak with your advisor to help you find perspective and gain clarity about what history shows us is likely a typical market cycle.

I’m not trying to understate this, it’s nerve wracking, but history shows that this too shall pass.  


5 Russell Investments. 2021 Advisor Study.



Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.