So you’ve come here looking for the secret sauce. How to avoid the next bear market.
I’ve been investing for a while now and have been a voracious reader. After years of trial and error and learning from others I’ve finally stumbled on the hot tip that will keep you dry during the next recession.
Lean in a little closer and I will tell you. Closer……
Don’t invest.
Yes, that is your only option if you want to miss out on the next downturn. And in my opinion a terrible option.
Sure, you will not suffer losses, but you will also miss out on any gains. The problem is no one knows when is the right time to pull out of the market and when the right time is to re-enter the market. You have to get both parts pretty much spot on to benefit. Why do you think you can do this when the professionals can’t?
The pros have been calling for recessions since 2010.
Let’s say an investor has $20,000 invested at the end of 2012 and hears this advice that the markets are over heated and pulls out their cash. The closing price is 4,200. They wait for the drop. And wait, and wait. The drop never comes. Not until February of 2020, albeit a temporarily quick one. The market price is now 9,717 after the first substantial drop in over 7 years.
More than twice as much as the point you determined the market was expensive in 2012.
That is a heck of a long time to be out of the market and I dare say the NZ market index will never return to 4,200 or less.
What are they going to do now? Cash will lose to inflation. Bank savings will barely match inflation. How are you going to build your assets? You can’t work forever.
If you are worried about losing too much money then maybe all you need is a tweak to your portfolio. Maybe more bonds. If that means you are more likely to remain invested, then that small portion of lower risk returns is more than worth it.
As long as you are well diversified and don’t need your investments for the long term, the best thing you can do is embrace volatility. You can’t time the market, let alone do it consistently. I can’t. No one can.
The most successful investors are the ones who remain invested for the long term. Through the ups and downs and continuing to accumulate, especially during the down turns. They understand that bad times happen. And quite frequently. They aren’t surprised by this. They are ready for it. In fact, they are surprised when there hasn’t been a downturn in over 7 years.
They understand that their own behaviours are far more important than market returns. How emotionally stable they remain and financially consistent they are, are huge drivers in their success. They are confident that human progress and innovation is inevitable and worldwide markets will march forward over the long run. They are confident in the long term, but unsure of the short term.
So don’t ask yourself how can you avoid the next bear market. Ask how you can embrace it and take advantage of it.
Sitting out can be very costly indeed.
If you need an investment plan or recommendations , then get in touch today.
The information contained on this site is the opinion of the individual author(s) based on their personal opinions, observation, research, and years of experience. The information offered by this website is general education only and is not meant to be taken as individualised financial advice, legal advice, tax advice, or any other kind of advice. You can read more of my disclaimer here