Six Tips For Surviving A ‘Bear’ Market

Six Tips For Surviving A ‘Bear’ Market

A ‘bear market’ is the label given to a market when it falls more than 20%. For most investors (and everyone else, of course), bear markets are no fun at all—they usually indicate a looming economic downturn, recession, or worse.

The question is this: what can investors do to survive a bear market? After all, most of the success of a retirement plan relies on the effectiveness of its investments. What happens if those investments decline in performance?

In the last two decades we’ve lived through a series of bear markets: the Dot Com crash of the early 2000s, the Global Financial Crisis and now the fallout from COVID-19. In surviving these harsh economic environments, we’ve learnt a thing or two about the financial ‘grit’ required during tough times.

Here are some tips you can follow during a bear market to help keep your retirement portfolio thriving. Please note, this article is general advice only. Do not act on the information provided in this article. Contact us if you would like specific financial advice.

1. Don’t panic (If you have a good plan)

The first rule is simple but effective: if you have a good plan, don’t panic. It’s a simple as that. Panicking may lead to knee-jerk reactions (eg. buying or selling at the wrong time, and/or buying/selling the wrong financial instruments), which could make your situation worse.

Ideally, your financial plan should be clearly defined and designed to weather all types of financial situations, including harsh bear markets… which means you shouldn’t be in a position that causes you to panic.

If you don’t have a plan, chat with us immediately.

2. Stick with your plan

Secondly, if you’ve got a good plan, stick to it. The biggest mistake you can make is forgetting about your plan and making impulse decisions based on emotion. If you’re a long-term investor, keep your long-term investor mindset and only change if truly necessary.

3. If you have cash/capacity, consider buying

We all know that crisis breeds opportunity. If you have spare cash, a bear market is often a time to consider buying additional investments (in other words: buy low, sell high).

As an example, for self-funded retirees, we might suggest drawing down as a plan. Some retirees have extra capacity because they’re not spending as much as they previously were (or perhaps they had extra cash built up). In those types of situations, they can look at buying opportunities. Some retirees might have even dropped their super pension payments by choice, which means they have spare cash to invest.  

It’s important to note that as a long-term investor, you’re not trying to find the bottom — you’re just fortunate to have the opportunity to buy in the ‘dip’.

4. Consider moving up one risk profile

If you’re in a strong financial position, you can consider moving up one risk profile. What that means is increasing your exposure to higher risk investment vehicles.

Moving up one risk profile is the equivalent of increasing your exposure by around 20%. If you’ve been waiting to get into the market, a bear market and buying into the dip is the ideal opportunity to do that.

But just remember, there is no perfect time. We’re simply aiming to average in. You might get in a little early or even a little late, but in the long run, you’ll be ideally placed by increasing your exposure to risk when markets are falling.

5. Bring your reserves down by one year

We always encourage our clients to have solid cash reserves and we always speak about having at latest two or four years to work with.

Cash reserves are important because it means you don’t have to sell at the wrong time. When markets drop, that is usually a time when you can reduce your reserves and put that cash to work.

6. Turn off the news and enjoy the good things in your life

Lastly, it’s important to remember that the news is simply an aggregation of everything bad that is going on in the world on a given day. It’s very easy to lose sight of everything that is good in your life and the rest of the world.

Turn off the news and remember the things that are good in your life. Hopefully, you’ve been planning well in advance for a market downturn and for those who are well prepared, this is an opportunity – not something to be fearful of.

Can We Help With Your Investment Strategy?

Over the past 20 years, the team at McGregor Wealth Management has helped hundreds of hard-working families accelerate their wealth.

Unlike most financial advisors who focus on market-based investment strategies (often driven by alliances with big financial institutions), the we take a more holistic and client focused approach to help you accelerate your wealth, so you can maintain (and ideally improve) your income and lifestyle in retirement.

Our process is simple and begins with a Free Wealth Potential Strategy Session, during which…

By simply going through this exercise, many people feel more in control of, and optimistic about, their financial future.

To explore how we can help you understand your wealth potential, get in touch to arrange a Free Wealth Potential Strategy Session.

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