How to Invest During a Bear Market

By Financial Advisor Carrie McDonnell

“You make most of your money in a bear market, you just don’t realize it at the time.” Shelby Collum Davis, American businessman, investor, and philanthropist

Understandably, clients can find it difficult to invest, or stay invested, during volatile market conditions. It feels counterintuitive to put your hard earned money into a downturned market and even experienced investors waiver when faced with this decision. However, if you have a well diversified portfolio of low fee funds, staying invested is likely your best course of action in maximizing your long term returns.

An awareness of how markets have historically performed and how our emotions affect investment decisions can help calm investors and boost confidence during a bear market.

It’s important to understand that market volatility is nothing new. The twenty-year rolling return of the market over the last 50 years has ranged from 6% to 18%. Despite the various economic lows (Black Monday, 2008 financial crisis, dot-com bubble, covid crisis, etc.), the U.S. stock market has managed a twenty year average return of at least 6%. While past performance doesn't guarantee future performance, the stock market has a history of remarkable resilience, bouncing back again and again from bear markets.

The consistent relationship between the best performing days and the worst performing days is another reason to stay invested. Over the last 20 years, 25 of the best trading days were within one month of the 24 worst trading days.¹ And here’s the thing: missing out on just 10 or 20 of the best performing market days can impact your long term investments in staggering ways potentially cutting your returns in half. In other words, it pays to stay.

Human emotions often guide our investment decisions in the worst ways, especially during a down market. As markets drop, fear reigns, causing investors to withdraw. In the “Cycle of Investor Emotion,” the maximum financial opportunity tends to be when the market, and your emotions, are at their lowest points. Warren Buffett’s advice for investors is to be “greedy when others are fearful.” Or just leave fear and greed out of the equation and apply basic consumer logic: buy when the price is low.

When market prices fluctuate dramatically, it’s natural to flinch, but instead of panicking, lean into the data and the knowledge of the market’s historical performance, turn off the financial news and reach out to a fiduciary financial advisor you trust.

1. BlackRock, Bloomberg, Morningstar as of 12/31/21