A bear market is defined as a 20% drop from recent market highs. Thus, if your $1 million portfolio declined to $800,000, this would be a bear market. Technical definitions aside, most people would say that any drop in their portfolio isn’t fun. Those who have worked hard, saved a lot, and lived within a budget don’t want to see their investment account substantially lower. It’s unsettling at best, and downright scary at its worst.

So, what’s a person to do? Well, by way of background, turbulent times (which is what we’re experiencing now) are actually quite normal. And while the news media would like you to believe that we are teetering on the edge of the abyss of economic collapse, I’d simply remind you of 2 things: 1) fear sells ads and 2) this too shall pass. The media outlets would want you to succumb to their incessant claims of stock market crashes and bunker building blueprints. And, if we’re honest, it just feels like we should be doing something…even if it’s wrong. Cash feels like king and the temptation to sell everything and go to cash is incessantly knocking at the door.

But, as a long-term investor, trying to time the market tops and bottoms is nothing short of a fool’s errand. Research reveals overwhelming evidence that most investors diminish their returns trying to do so. Market timing, while tempting, entails getting 2 impossible decisions right: 1) when to sell and 2) when to get back in.

The table below shows the 15 best days in the market (S&P 500) since 1950. Scanning the list, some doozies are there. Remember 2008? Crazy times in the market! Yet 6 of the 15 best days in the market happened during that year! Another 2 were in 2009! Whoops, and there’s 1987! Remember Black Monday? Worst day in market history, but the 5th best day in market history was the same year! By trying to miss the worst days, investors give up the opportunity to participate in the best days.

To drive the point home, the fact is that missing just the 10 best days (out of over 17,500 trading days since 1950) has had detrimental effects on returns. An investor who invested $10,000 in the S&P 500 in 1950 would have gained 7.9% annualized returns and finished with a portfolio value north of $2.3 million in 2022…if they would have remained fully invested. Missing the best 10 days from the chart above?… 6.7% annualized return with an ending portfolio value of just $1.1 million. Missing all 15 days?… 6.2% annualized return and just $800,000 to your name.

“But Tony!” the naysayers begin. “You’re only talking about the best days. The worst days occurred around the same timeframe as the best, wouldn’t avoiding those be in my best interest?”

Short answer: No. Owning stocks on historically bad days can be unsettling, but outcomes over the next year tend to be favorable. Let’s look at the 15 worst days in the market since 1950, but I’ll also contrast it with the market return 1 year later.

As you can see, the average 1-year return after historically bad market days has been 30.3%. There’s only been 1 instance of a negative return.

The Battle Plan

As we speak, economic uncertainty and global unrest is still unfolding. The instinct to act can be difficult to resist. But now, more than ever, we need to focus on what we can control and not let ourselves be overwhelmed by things we can’t. Here are some important reminders for you to consider as we battle the bear!

  1. Keep a long-term perspective. As hard as it can be, resist the urge to sell out of stocks. As the charts above reveal, rebounds can happen quickly and the cost of missing them can be significant. In fact, in periods of lower prices, this can be an excellent opportunity to add to stocks as, over time, the future returns of equities are superior to cash.
  2. Utilize a Bear Market Fund. This fund is the portion of your portfolio that isn’t invested in stocks. It’s to ensure the funds you need for spending in the near future are not at the mercy of short-term market movements. It’s the best medicine for a good night’s sleep.
  3. Revisit your retirement projections. Reviewing scenarios for how the future may evolve may be very helpful in creating the appropriate context for making decisions today.
  4. Turn off the TV. The constant feed of bad news isn’t for the benefit of the investor, it’s simply to get the investor’s attention, and sell them ads. The onslaught of bad news can be difficult to decipher, and ultimately lead to bad investment decisions. Rely on your investment professional and take a break from trying to do it all yourself. It’s important for you to stay physically and mentally healthy and the news just doesn’t promote either.

Was this helpful? Do you need to talk? At Hixon Zuercher Capital Management, we’ve amassed a professional team of advisors that can assist with your Bear Market Battle Plan. And, if you’re not working with us, be sure to contact your advisor for help. Together, we’ll get through this. There’ll be bumps and bruises along the way, but the market will recover, as will your portfolio. Be patient, stay calm, stay invested. This too shall pass…

The Best Is Ahead!