By Dr. James M. Dahle, WCI Founder
I originally wrote this post in 2016 and then republished it again in 2019. With the market down significantly in 2022, we're republishing it again. When I originally wrote it I wasn't really sure where the markets would be when the post actually published, much less when it was republished (and then republished again). But I said, “Since you should expect a bear market every three years on average, this post will be useful for years to come. Maybe we'll have one this fall, and maybe it'll be a couple more years. I have no idea, but this post will help you be prepared when it does come.” Well, that time is, once again, here. Hopefully, you'll find this information useful and timely even though it was originally penned years ago.
Since the US stock indices are down 15%-20% YTD in 2022, this is a good opportunity to review the things you should and shouldn’t do in a bear market if you hope to be successful at reaching your investment goals. The information in this post assumes you had a reasonable, low-cost, broadly diversified, written investing plan in place at the start of the bear market. If that isn’t the case, develop and write down a reasonable investing plan first (or look to our Fire Your Financial Advice course for help), and then come back and read this.
6 Things to Do in a Bear Market
#1 Do Nothing
Many investors repeatedly shoot themselves in the foot due to a lack of discipline and good investing behavior. Investors typically buy high in a bull market euphoria and then sell low in the bear market doldrums. You can beat the average investor by simply doing nothing. Don’t look at your portfolio values. Don’t watch financial news. Don’t read the newspaper. Don’t open your investing statements.
Even if you decide not to do anything else on this list, at a minimum, be sure to do plenty of nothing during a bear market. By the time you’ve noticed the market heading down, it’s probably too late to sell high in hopes of buying low later. Besides, your cloudy crystal ball isn’t going to tell you when to buy, just like it didn't tell you when to sell. Forget trying to time the market and realize that it is time in the market that matters. The money in your retirement portfolio won’t be spent for decades, so invest like it.
Stay strong; stay the course.
#2 Tax-Loss Harvest
If you are investing in a non-qualified or taxable account, Uncle Sam has volunteered to share the pain of your losses. Although the natural thing to do when your investment goes down in value is to hold on to it in hopes of getting back to even, the smart thing to do is to sell it and buy something very similar but, in the words of the IRS, not be “substantially identical” at the same time. This way, you get to use the loss on your taxes, but your investments perform essentially the same.
This is called tax-loss harvesting. Those tax losses can be used to offset future capital gains, and you can even deduct up to $3,000 per year against your regular income. Although that decreases your basis and, thus, may possibly increase future taxable gains, you benefit from deferring the gains for years—and possibly even until a time when you are in a lower capital gains tax bracket.
You can get out of recapturing those gains completely by donating appreciated shares to charity or by dying and leaving the appreciated shares to your heirs, who will get to enjoy the step up in basis at death. That allows them to sell the investment without paying any taxes on all of those gains that occurred during your life.
#3 Evaluate Your Risk Tolerance and Asset Allocation
A bear market, especially your first one, is a great time to find out whether your risk tolerance is as high as you thought it was. Since you based your asset allocation, or written investing plan, on an estimate of your risk tolerance, now is the time to find out if you guessed too high, too low, or about right.
If your risk tolerance is higher than your asset allocation, now is a great time to make your asset allocation more aggressive. You may not be buying low at the market bottom, but you are certainly getting a better price than was available at the last market top.
If you find out that, like many investors, you are lying awake at night worrying about the money you have lost, that is a sign that your asset allocation is too aggressive for you. However, now is NOT the time to change to a less aggressive asset allocation. That time is one, two, or perhaps even three years away, when the bull has reappeared and most or all of your losses have been recovered. If you simply cannot stand it, try to just sell a little. You will be surprised how little it takes before you can sleep again. Sell down to the sleeping point, but do not panic and “go to cash,” selling all of your investments. I have worked with physicians who have made that mistake. They’re still working, unlike other physicians their age with better investing discipline.
#4 Review the Cost of Your Investment Advice
When things are going well and your investments seem to be trees growing to the sky, it seems very reasonable to share that success with your investment advisor. However, when many investors realize their advisor is making good money even when they are losing money in a bear market, they start rethinking the advisory relationship.
Paying typical fees to even a good investment manager can have a dramatic effect on the size of your nest egg. After 30 years of earning 8% before fees and paying 1% to an advisor, you will end up with 17% less money than if you did not pay that 1% fee each year. While it hurts to temporarily lose 15% or 25% of your nest egg in a bear market, it should hurt even more to permanently lose 17% of it gradually over 30 years. Consider it a guaranteed way to boost your nest egg by 17%: learning for yourself how to do what your investment advisor is doing for you.
#5 Defer Major Purchases and Prioritize Investments
Many investors don’t realize that a large percentage of their long-term investing gains are made during a bear market. A bear market is the time to be pouring money into the market, buying low rather than taking it out. Thus, it is a great time to defer some of your major purchases. This is not the time to buy a new car, purchase that boat you’ve had your eye on, remodel the kitchen, or take that dream trip to Tahiti. This is the time to fund your Backdoor Roth IRAs, accelerate your 401(k) contributions, start that taxable investing account, and take advantage of the fact that physician incomes tend to be quite stable even in economic recessions. Physicians, more than many people, can afford to continue to invest in a bear market, buying low and boosting long-term returns.
#6 Learn Market History
If you find yourself worrying about all the money you lost, this is probably a great time to improve on your financial education. I would suggest starting with a review of stock market history. You will quickly see the stock market drops by 5% or more about three times per year, by 10% or more (a correction) about once per year, and by 20% or more (a bear market) once every 3-4 years. Over your 60-year investing career (30 years working and 30 years in retirement), you will need to go through about 60 corrections and 20 bear markets. Might as well get used to it. This is normal market behavior.
The chances that this time is different are very low. So far this century we have had a bear market in 2000-2002, in 2008-2009, in 2011, in December 2018, in March 2020, and again in the first half of 2022. It should be no surprise when the next one shows up. Your written investing plan should assume this will occur and give you instructions about what you should do when it does occur. All you need to do is follow it.
What do you do in a bear market? Why do you do that? Comment below!
[This updated post was originally published in 2016.]
Good points. Succinct. Right on. Especially point #5.
Unless you will be needing to sell investments to raise money for something important in your life (but why do you need to do that? Any money you might need in the next 5 years probably shouldn’t be invested in the stock market), an investor with a longer term horizon should celebrate every market downturn as a sale. I only wish I took my own advice over the past 15 years!
I’m looking forward to the next one!!! Not losing 50% of my portfolio….. But buying on a discount into the next bull Run!!!
In 2008, I stopped watching the news and stopped looking at my portfolio. I increased stock asset allocation and kept too busy to worry about it. And, 2008 was a great time to by a boat by the way. They rarely go on sale in our area but boy were they then. Patiently having cash on the sidelines allows you the opportunity to purchase large items on sale. lt was also a great time to get furniture. I got a better deal by buying when no one else was.
Poor examples. Your boat and furniture may have been purchased at discounts, but they are DEPRECIATING assets. The alternative in 2008-2009 was the stock market which have appreciated 230% since Jan 2009.
Depends on your overall life view. Waiting to buy something you plan on buying anyway until you get a good deal is wise. Our goal is not to save everything. We are not overly frugal. Having cash on hand allows the option to do both – spend wisely and save. Believe me, many would have thought I was nuts how much we invested during the crash. My risk tolerance apparently is skewed too risky, which I am fighting now as we age and need to become more conservative due to sequence of returns issues, need for risk, etc. Each of us has to find the balance of living now and preparing for the future.
It’s not all about the bottom line when you die. The purpose of saving for me is to be able to spend more later. So balancing spending and saving is key. So even though my grocery money could have appreciated 230%, I’m still glad I bought food with it.
Actually the smartest thing to do is invest when asset prices are down. Real estate, stocks, whatever is down the most compared to its intrinsic value.
Then purchase luxury items with low interest loans as fed fund rates go down and most physicians have stable income with good credit. Therefore you are actually buying your lucera items when you can get a good deal on the item/remodel/boat and pay the minimum interest on it. And actually pay it off with money when assets are fair/to overvalued.
You brought up an interesting topic. I am planning on a decent sized remodel of our home. Do I do the remodel in a bear market and pay less or do I buy cheaper funds?
Tough choice. Has the demand for remodeling really dropped much after just a 13% correction, half of which has already been made up? I would say if the economy slows, perhaps make a big purchase. If just the stock market drops, buy the stocks. If both, then perhaps split the difference.
Last two days its flirting with those 1/20 lows again. Interesting how persistently down its been. Its always safer this far from the high than it was at it, even if it keeps drifting lower. Definitely a sickly market, but it did seem to get ahead of itself. Nobody seems to call these corrections/bears healthy until after the fact…
Predictions are tough, especially about the future-yogi berra.
As to your savings comment it is spot on, what we are really doing on the secondary market isnt investing (giving seed capital to fund future production) its allocating our savings for future consumption (with an explicit expectation of them being larger of course).
When discussing the stock market and the economy remember….the stock market has predicted 9 of the past 5 recessions. 😉
Easy choice. Buy stocks in a bear market; harvest the gains in an up market to pay for your luxuries. Building materials and labor don’t fluctuate much.
Perhaps, but they do fluctuate some. So do consumer goods. We bought a Toyota Sequoia in early 2009. NOBODY else was buying expensive SUVs at the time. So we got a pretty good deal.
Whoa! Violation of your guideline #5. Purchased a luxury item during a deep bear market.
Well, since the other car wasn’t driveable any longer, it seemed a good time to do it. It would have been nice to put it off another year or two, but the guy who ran into its predecessor didn’t give me much choice.
We have remodeled in and out of bear markets. I think it is more important that you hire good reputable people and that you are ready for any life inconvenience it may cause you during the remodel than timing the market on this one.
And it would take some thinking to decide if you want to remodel or do you need to remodel. Building materials and labor do fluctuate much in cost. During the bad markets, it is easier to schedule reputable people and to negotiate with them – first hand experience.
I’ve “lost” $500k so far this year in the stock market, great start! Is it bad that I get excited to tax loss harvest?! I started investing in the 5th grade and have seen several cycles. I’m still young enough and dumb enough that I hope it keeps dropping. Warren Buffet just dropped $1B into an oil stock (Phillips 66). He also loaned GE and Goldman a boat load of convertible money during the darkest days of the Great Recession…paid off handsomely. He’s definitely one of a kind!
Munger once said that he’s seen the value of their investments cut in half atleast four times. If the stock market acts like 07/08/09, this might be a once in a blue moon opportunity to get solid companies with good management at a discount for the long term investor who is ~20 to ~30 years away from using that money. A look at a company’s balance sheet and cash flow statements will be a great start to see who will survive a potential bear market. The question is how long the next down turn will last. So dividends will play a large part in total return. The previous one picked up as soon as the Feds started unconventional monetary policy so what can they do next time? Or will the market just have to pick up after itself? I have my watchlist and I’m fine tuning it… I’m just building a cash position for now. I’m pretty sure oil will stay under 50 this year based on all the people I’ve talked to who work in the industry and related industry. Some of the people I talked to say that their companies are not expecting to return to profits even in 2017. And that was when I spoke to them in last summer and things have only got worse since then. In a bear market, cash is king!
Since you do this kind of thing, 2016 may be interesting in the oil patch, but the real pain occurs in 2017 when credits come due, 16 is thankfully pretty lean for maturities, 17 has massive obligations. If oil doesnt come back soon enough to allow some profits and make credit loose again, theres going to be interesting things afoot. I dont have the link for amounts due in o/g, e/p but its out there.
You should be right about 2017 being very hard. I live in Houston and have friends that work in BP, Schlumberger, Baker Hughes, Shell and other oil service companies and also friends that work at banks that lend to companies in the oil industry and they don’t expect oil prices to go up to levels that are profitable for a long time or even see profits for two more years based on discussions last summer. It’s a very tough market to develop new business and maintain existing contracts. Last summer when I talked to a friend who is senior management and travels the world to oversee contracts, he said that the super majors are trying to get their suppliers to reduce their costs by 20% to 30% and planning for $40 oil as a worst case scenario. We crossed $40 and we’re in the high 20s which is why even many of the majors started capitulating starting with dividend cuts for the highly levered players in the industry (SDRL, LINE, KMI, COP). Companies like COP and CVX kept stating that they would be cashflow neutral based on oil prices in late 2014 to early 2015. That probably will never be the case and they will have to take on more debt. So currently they are paying dividends through debt (COP has already cut its dividend by some 65%). A few months ago, COP terminated a 3 year contract with Ensco Drillers (ESV) which had a day rate of $550K which COP is still obligated to pay ESV for two years of the contract even if terminated until ESV finds a customer for that rig which at this point, I’m sure no one will take up until the price of oil goes up. So the big majors are willing to terminate contracts and pay the hefty fines as opposed to operating in a low priced environment that does not justify the operating cost. I had also talked to a friend who is a loan manager at one of the big banks for oil related companies (they’ve even loaned to companies like Petrobas and got burned). They are now in write off mode for many of the smaller players and expecting loans to go bad. Few months ago, they were preparing for a 40/barrel oil market when it was only speculation. Now we’re in the high 20s. They are no longer giving out loans in the oil industry for the smaller players. They are very serious about credit ratings and are in down grade mode. They’ve got instructions from their CFO to cut back on oil related loans. They also had a big round of lay offs and reorgs within HSBC and part of this group was in the cross hairs too. So many of the after effects of these changes should start making its way in the oil patch.
It will be a very interesting market to watch. I’m completely out of big oil and just staying long with refiner PSX which has been growing revenues and profits from the lower cost of oil and has lots of cash on their balance sheet.
I’d be careful with refiners. Now that they can export their spread has been crushed. CVX wasnt even free cash flow positive during the best years leading up to now, now theyre just crazy awful. I dont understand the dividend thing, its a horribly detriment to their balance sheet health to throw that cash away (and pay tax on top).
Also out of oil, may pick up an energy index should oil (it should) test and possibly break the recent lows. No reason it shouldnt, conditions havent changed. Pumping wont stop until its equity driven, while its still debt driven it will continue to flow.
You really believe in that technical analysis voodoo?
No way! But I do know there are a lot of people out there who do believe it, and then it can become a self fulfilling prophecy and actually seems to work enough (for their confirmation bias sake) to make the views even stronger.
I tried for a long time to totally dismiss TA, but the herd that believes is actually large enough to move things (and the algos they program), so I learned to respect some of their ideas, even though the reasoning is totally off base.
What can you do? The real reason it should go lower is pumping hasnt stopped and the financial reasons are all still in place, ie, companies that are highly leveraged and need to pay back creditors, so they “cant” just quit and ride it out. Game theory also supports oil in a prisoners dilemma and they will all pump til they die off…but somewhere out there a TA guy will call that a test and breakdown, lol. Its the perfect art, there is always a post hoc explanation that “totally” predicted it, ugh.
So much of that stuff can simply be ignored with a long-term perspective. Most people will admit they have no idea what the price of oil or the shares of those who pump it will do over my investment horizon. Since that future cannot be predicted, the best thing that can be done is to simply ignore it, which of course has the very convenient side effect of requiring less time, effort, money, and expertise on the subject. Nobody knows nothing, so I might as well go snowboarding.
That’s true, and I agree overall. That’s why it’s important to not get bogged down in picking a “bottom”. The further down you go the closer you are to the eventual upside, and most importantly you’re guaranteed not to have bought at the highs, how nice is that.
As for oil prices, that’s just entertaining, I wouldn’t waste money in the area. Seems tons of speculating by both sides, and lots of hopes about where it may go based on what’s important from the speculators position, not informed in reality whatsoever. Macro is just interesting intellectually now that the world is becoming ever more connected.
At any rate, economy seems to be slowly going along, so no obvious things to be fearful of, and given our timeframe, will be a blip in a couple decades.
Yes, I just got done selling a bunch of bonds and buying stocks a few minutes ago. All new money going toward stocks too. I agree it’s very hard to call a bottom, but it’s nice to be buying stocks at the price they were offered at 2 years ago instead of the price they were at 6 months ago. Of course, before this is all over perhaps I’ll have the chance to buy at 2010 prices!
Keep a healthy dose of skepticism when looking at those balance sheets and cash flow statements. Use your background to familiarize yourself with all the financial engineering games companies play. If you haven’t read The Intelligent Investor, Graham has some excellent examples.
Nice article. In regards to point #5. “5. Defer Major Purchases and Prioritize Investments”
Its funny. On one hand, we say we don’t know whether this will be a temporary trough or if we have 12 more months of decline coming. Our guesses will likely be wrong 50% of the time. On the other hand, we say a bear market is the time to redouble our money towards investments. This is certainly true with spending vs investment choices, but is trickier when prioritizing investing vs other productive ends like making extra low interest mortgage principle payments. Seems to me in this case it is better to stay the course until the correction has exceeded 20-30% and one can be pretty confident that we are infact near the bottom. I’ve been preferentially paying oextra mortgage prinicipal the last few years during what I viewed as an extended bull market. At some point soon, I will pivot this money towards additional investing in taxable account, I’m just not sure exactly when. Maybe now.
I’d be curious on WCI’s thoughts on this.
I remember thinking I should wait until we hit 20-30% down in 2011 before piling in. That correction stopped at something like 19.8% down. So the downside to waiting for “the bottom” is we may never get there. Consider our recent little correction. It dropped 13% and then recovered half that. That might be as far as you go. Crystal ball so cloudy. The easiest thing to do is just put money in every month and follow your plan instead of trying to market time around the edges with your spending and contributions. But when I start seeing 10%, 20%, and 30% discounts, I’m much more likely to defer spending to buy stocks.
I second this. Crystal balls are clear in hindsight only. Whereas #5 where you can prioritize things, is entirely within our own hands. Hence – following the plan instead of timing things, and planning other expenses as you need them instead of timing them.
Unless your plan allows for some timing;)
I agree, however it would take some kind of planning or analysis that I’m not trained to do. I have looked for it, but every time it has not made sense to me going forward.
It doesn’t mean that I haven’t tried to time the market – learned not to do it after trying it – using some of those techniques at times- Fool.com and many others. It was mostly a waste of time over long term. It was also a waste of money as I learned after dot com crash. As WCI says, those were small losses to learn big lessons.
By the way, DrMom, I sincerely hope people would read your posts/comments, and really read them more than once. You and Ken here say things clearly and briefly, but they contain pearls of wisdom after years of learning and experience. Almost each one of the comments is like a headline that a full post can be written about. Thanks.
Thanks. Ken and Hatton are my favorite posters. My reference to timing is purely behavioral. I don’t have some secret timing plan that is the mathematical reason for successful investing. I just know my weaknesses as an investor and have a plan that addresses them as I work toward fixing them. My timing at the edges of my portfolio addresses my inability to be a totally passive investor in a way that can’t hurt me too much. Then I read Value Averaging and found there was some math to back it up.
Dr Mom, I am honored to be one of your favorite posters. You are one of mine also.
@Gipper, I SO agree with your plan to shift discretionary money away from mortgage prepay to investments.
this is why you own bonds and other asset classes
What is a good source to determine how much the market is down over the week, month, year etc.?
I am pretty basic with it. I look at Yahoo Finance and see what the closing high was for a given index for whatever time frame you want. Then I calculate it myself. Personally I only look at all time highs.
I tend to use Google finance for the Vanguard Total Stock Market Fund. Be aware it excludes dividends. Morningstar or the Vanguard site is more accurate in the long-term because of that.
If you want to compare your stock or fund portfolio to INDICES, use bigcharts.com
You will see your results over time-Don’t be shocked
I have some money to put into the market. I’ve always been a passive index fund investor with a conservative asset allocation. I have about 10% of my income that DCA into tax advantaged accounts. I’d like to take some of the cash I’ve accumulated and buy Vanguard TSM index and can’t help but try to time it at the bottom. Some of this cash will be used for downpayment on a house, that money will be kept in cash until the right house shows up but the rest I’d like to invest in a correction or bear. I’m not sure how to calculate when the bear has started. Could I just use Vanguard TSM as an indicie starting January 1st as my start point and when (and if) the valuation drops 20%- choose to pile in some cash at the at time? I sure see the value of DCA- set it and forget it. Maybe I should just do something like that in my taxable account as well. I don’t want to spend much time trying to time the market, but buying low has it’s appeals.
When I DCA’d I would double my monthly amount if the market was down 10% from its recent highs. I didn’t arbitrarilly use Jan. 1 as a start point, though. After that, I would put in more if down 15-20%, then 20-25%, etc. I wouldn’t try to time a bottom. After reading Value Averaging by Michael Edleson, I realized that was closer to what I was doing. WCI has it in his book section. Hope it helps.
A bit of “over-rebalancing.” I think Bogle has written a bit about that. I think the key is to use moderation.
I always think in terms of the most recent high as well. Sometimes it takes years but the Dow, S&P, and Nasdaq have always bested their previous highs. To be a long term investor you have to be an optimist. So we are in a correction possibly heading for a bear. In 2008-2009 I was aggressively buying Apple, Citigroup and Exxon. I no longer buy individual stocks but those worked out well. I will likely own apple until I die. Now that I am an indexer I frequently run the Vanguard portfolio tool to see what I need. I always am light on international stocks and midcaps so thats what I have been buying lately. It is all on sale.
Why not use the last high if you want to try market timing? The market peaked back in June and is down about 13% since then. If your plan is to dump it when a market correction occurs, then do it now. If your plan is to do it when a bear market occurs, you need to wait for another 7% drop, which may or may not happen. But buying now you’re at least assured of a 13% discount compared to last summer, but that doesn’t mean the market couldn’t drop 50% from here.
Agree with using the recent market high, makes it dead simple. If youre dead set on timing (and I wouldnt be if you’re long term) your upside from waiting is much smaller than that for getting in now. You’re already 10-15% off the highs depending on your fav broad index.
Thats as good a time as any unless you are for certain we are about to have a recession. Bear markets without a recession (4 of last 10) seem to end near the 20% range, and only those during recessions go much further (obv 6/10). There was a good paper on this a day or two ago. So while more downside may be in the cards…the risk/reward is firmly in favor of being in even so.
Sometimes you can’t always follow #5. We recently had to replace our roof. We knew were were due for a new one time wise in the next (couple years) then an unexpected leak moved up the timeline. Rather than paying for repairs and work on a single area, we opted to replace the whole thing (seemed to make sense as the quote for local repair was not insignificant). Had multiple bids and the one we went with, I was able to negotiate not only a good discount from original quote, also threw in some extra gutter work for free.
Now if the market was still sky high and people not so glum, I bet I would have had less of an edge, cause in our local area there has been a good housing/renovation boom as of late, but seems to have slowed a bit in last 3-6 months. Feel the timing helped.
Also as an aside this is why I have a set aside pile of cash for “unplanned expenses” for things such as this, unexpected car repairs, etc. I set aside a few hundred bucks a month into a pot just to have. This is separate from our “emergency fund” as well as our usual savings that come out automatically every month. It was a lot less painful cause it doesn’t affect my operating budget, so is no real impact in other areas of saving/spending. Would I have loved to throw that money into investments? Sure. But you gotta keep the rain outta your house!
I’m not sure replacing a roof and replacing a wrecked car are the same thing as buying a boat or a major home addition.
These are some great tips for entering bear markets! I would say were in the beginning phases of a bear market right now in 2016. The one thing I try to keep in mind as prices drop is that, it isn’t such a bad thing as everyone makes it out to be. I look at it as a buying opportunity and a new time frame or window to make better returns for when it comes time for rebalancing my portfolio.
I have no idea if it is going up or down from here. I think if you’re really honest with yourself, you don’t either. At least if you’re smart, you’ll invest that way then write down your predictions and look at them in a few months/years.
My #7 would be thankful that my job is largely recession proof. As other commenters have noted, if you work for an oil company not only is your portfolio down but your income is likely flat to down and your future uncertain.
I try to remind my colleagues who are always complaining they are underpaid that we have more security than most others
Excellent point. Gratitude is obviously never a bad thing whether a bull or a bear!
Does any of this change if one is on the verge of retirement?
Unfortunately, the changes that should be made when on the verge of retirement should be made prior to the start of a bear market. This includes taking money out of the portfolio to buy SPIAs, adopting a less aggressive portfolio etc.
One thing to keep in mind is that you don’t need all your retirement money on the day you retire. Some of that money isn’t needed for 20-30 years, so it’s fine to leave it invested aggressively even in a bear market.
Tax Loss Harvesting is the greatest solution to loss aversion, one of the greatest psychological threats to your long term wealth. Especially satisfying if you like Uncle Sam to share in your losses. Of course, TLH requires a taxable account which few high earners do.
The loss of the stepped-up basis at death Rule is gonna mess up my estate planning if Hillary gets elected.
Any thoughts on tax lost harvesting during a bear market by selling VOO to buy VTI (or vice-versa)? I don’t think I’ve ever sold a market index fund to harvest losses because I didn’t want to gamble on waiting out the wash-sale period but I have wondered if 1) The S&P 500 index fund would not be considered “substantially identical” to the total market fund by the IRS (my guess is that they are not so considered) and 2) A big enough market crash could make this worthwhile, at least for more recent shared purchases.
Yes. I’ve done that.
No, it isn’t substantially identical. Despite the high correlation, VTI has thousands more stocks in it.
I like the video. Is that a new feature every Tuesday? They asked Dan Ariely, a cognitive psychologist at Duke what he did during the 2008 Great Recession. He said he put in his password three times to Vanguard, but put in the wrong password. He wanted to get locked out of his account so that he could not look at it. Some people only get paper statements for this reason. My favorite question on the WCI application is what you do for clients BEFORE the bear market occurs to encourage the correct behavior. There is a marvelous chapter in the Intelligent Investor, by Ben Graham about the stock market and its fluctuations. Reading that before a bear market is useful. I know this is off topic, but how did the name White Coat Investor come about? Was that the first name you thought of? Did you bounce other names around for a while? Just curious.
We are adding video across the site and on the Youtube channel as we are able to make them. Many of those are added to Tuesday Classics.
WCI came pretty early and pretty easily. I don’t recall if there were any other names that were really in competition with it. I don’t think so.
I recently heard this guided meditation by JL Collins for use during market turbulence. It’s remarkably apt and soothing. https://m.youtube.com/watch?v=OOGU94eL07E
“Don’t look at your portfolio values. Don’t watch financial news. Don’t read the newspaper. Don’t open your investing statements.” This is good advice for the uninformed and vulnerable investor. On the flip side, watching the news and seeing what happens to the market over a long period of time is an education in how volatile the market can be. Understanding this is key to long term success in investing.
I agree. 2008 was quite a show with many funds have 5%+ gains/losses in a given day.
My philosophy, nearing retirement, is can you afford a 50% loss in equities and still maintain your lifestyle(sequence of Risk)
BTW-no one knows when the bear mkt is coming
We are in strange times with interest rates at this extreme
Would appreciate some clarification… When adjusting asset allocation over time, do you think it is might be best to wait for some time if one is in a bear market? Or were you referring to drastic, sudden changes to one’s AA?
I guess my question is not so much the problem of selling equities at lows and buy bonds instead as the market bottoms out, but instead would be adjusting AA as one gets older (aging in bonds, adjusting percentages for monthly/yearly orders for US/Intl/REITs/Bonds).
No, I wouldn’t change my investing plan in a bear market. For the most part, wait until it ends, then make any adjustments. But if your written plan calls for a reduction in your stock to bond ratio, then I’d follow the plan.
You can also rent a smaller home or office. You can store away furniture and other items at a secure storage facility that’s much cheaper than home or office rent.
It is a good time to review your asset allocation. My portfolio is holding its own so far. Diversification in non-stock assets has helped in this downturn.
If we are in a recession or heading into one, then we may not want to “buy the dip” with any “dry powder.” But the economic signs seem mixed to me, so I’m willing to continue to add equities for now.
I started following Fritz’s lead and it helps take some sting out of any drops. I set up my Yahoo Finance App to alert me as a trigger since I rarely look at the stock news.
“If the stock index of choice drops by 5%, I automatically shift 1-2% from cash/bonds into equities.”
https://www.theretirementmanifesto.com/a-strategy-for-buying-into-a-bear-market/
Interesting plan. Obviously with anything like that, there are levels where it doesn’t work out so well. You could shift everything into equities and then watch them drop even further.
Agreed.
That’s why it is a 1% investment on a 5% dip. Fritz’s graphs show how this worked out fairly well for him in the last downturn. In 2008 he bought a lot too early in the decline. If nothing else, it makes you less miserable when another dip occurs since it feels more like an opportunity. Not a strategy for everyone, but a good option.
There are many strategies to invest during a bear market. I pay close attention to the “major players in business” and emerging ones. When markets are bear they dont care and honestly dont even know sometimes. They are focused on cash-generating activities like assets in the form of businesses or real estate or any income stream. These streams produce cash regardless of the market. This is the ultimate power move which is to establish income streams and when people are going crazy during bear markets and adjusting things other power players continue building their income streams. Not easy to do but knowing this and working on it can make the difference. I get the purpose of this article though. Sometimes we have to think beyond the article topics but good article i like it,