7 Tips to Survive the Next Bear Market

Almost two-thirds of Americans say they have not recovered from our last bear market.

Last April, the Transamerica Center for Retirement Studies surveyed 4,200 Americans to find out the lingering effects of our nation’s 2008 recession.

61% have not fully recovered. To break that figure down, 41% have “somewhat recovered,” 13% “have not yet begun to recover,” and 7% “may never recover.”

Now, if you invested in a broad-based domestic equity ETF over the last 10 years (Great Recession included) and stayed put, your staying power would have worked out just fine.

Here’s what your performance would look like had you bought in at the beginning (Oct. 9, 2007) of the 2007-‘09 bear market …


If you were able to stomach the 17-month bear market that saw the markets plummet 57%, you would have gotten your money back and then some.

An investment in the Vanguard Total Stock Market ETF (VTI) — which covers nearly 100% of the investable U.S. equity market — would be up 83%.

But as we saw from the Transamerica report, the average investor hasn’t enjoyed this ride.

In fairness, though, the other side of that survey revealed that 39% of Americans have navigated the market’s downturns.

Some 19% of Americans say they were not financially impacted by our nation’s 2008 recession. And the other 20% were negatively impacted, but have since fully recovered.

That means either you weren’t invested … you didn’t have a lot of exposure to equities … or you admirably rode out the bear market and enjoyed the current near eight-year bull market run.

So, what’s holding back most investors?


Source: BlackRock, Informa Investment Solutions

This emotional roller-coaster ride leads to massive underperformance for the average investor.

Source: BlackRock, Bloomberg, Informa Investment Solutions, Dalbar.

As you can see, the average investor has underperformed seven other asset classes (U.S. stocks, bonds, gold, international stocks, homes, oil and inflation) over the two decades above.

Since VTI’s inception date is May 24, 2001, let’s look at the SPDR S&P 500 ETF (SPY) performance over that same 20-year period …

Source: Bloomberg

From 1996 to 2015, SPY sports an annualized return of 8.08%.

Basically, the average investor would have been much better off (about 4X better) buying an S&P 500 Index fund and not touching it over those two decades.

The stock market will have another big decline at some point. It’s inevitable.

When it does, here are some common-sense tips that could help keep your emotions in check during the next bear market …

1. Tune out short-term forecasts. The market’s direction in the shorter term is unknown. Even experts get it wrong more often than they get it right.

Look at Wall Street’s top strategists’ average market predictions vs. the actual return for the market over the years.

(And be sure to check the scoreboard — we just posted our 2016 Uncommon Wisdom Daily results, if you want to check them out here.)

2. Avoid toxic investor behavior. Stay away from these behaviors: timing the market, chasing the “hot dot” (i.e., hot investment) and ignoring out-of-favor areas of the market.

Put another way … focus on the longer term, stay disciplined and try not to mix emotions and investing.

3. Use systematic investing. Sign up for direct deposit in a taxable brokerage account … take advantage of a retirement plan like a 401(k) where you can allocate a portion of each pay to investments … and switch your mutual funds, ETFs and dividend-paying stocks to dividend reinvestment.

4. Keep a well-diversified portfolio. Divide your wealth into different asset classes. Own domestic equities, international equities, large-cap stocks, small-cap stocks, global bonds, commodities, real estate, cash, etc.

Greater diversification results in lowered risk. Numerous studies show that asset allocation accounts for 90%-plus of your investment returns.

Source: Forbes. And if you’re looking for where you should put these assets, this graphic can give you a good idea what account to hold them in.

By diversifying across multiple asset classes, you can better protect your portfolio from market gyrations than if you only used a few asset classes.

5. Stick to your investment plan. Have an asset allocation plan in place. Other than annual adjustments and periodic rebalancing, don’t deviate too much from it. (If you have a life-changing event, you’ll need to re-evaluate your plan.)

6. Do your own portfolio stress test. The S&P 500 has experienced 11 bear markets (tumbles of at least 20%) since the end of World War II.

Apply a mental 20% stop-loss — or more if you wish — to the equity portion of your investment portfolio. Let’s say you have $100,000 in assets. And you devote 50% to stocks. A 20% downturn in stocks means you could lose $10,000 of your nest egg.

Can you withstand a loss like that? Do you have time on your side to get it back? Will you be able to sleep at night? If any of these answers are “no,” you need to revisit your current asset allocation now.

For the record, each of those 11 bear markets mentioned above has been followed by 11 bull markets where the S&P 500 eventually closed at a new high. On average, it has taken 3.3 years after a bear market begins for the S&P 500 to climb back and surpass its previous closing high.

7. Use protective tools for added safety. It’s easy to have a “set it and forget it” investment strategy. However, when the market is down 20%, the “forget it” part becomes increasingly difficult to “forget.” Position sizing will help limit any one loss in your portfolio. And a stop-loss policy provides a clear exit strategy for any one position.

At the end of the day, if you’re trying to time the markets, you could miss one — or more — of the market’s best days.

And that could end up being very costly to your bottom line …

During the five calendar years from 2011 to 2015, the best 13 trading days (13 out of 1,258 total trading days) were responsible for 68% of the S&P 500’s total return!

Follow these seven steps and you’ll be better protected during rough markets … and this should help you to truly enjoy the best market days when they come.


Grant Wasylik

Your thoughts on “7 Tips to Survive the Next Bear Market”

  1. You forgot to mention time lost during a down turn and recovery
    If three years to get back to even are three years with no growth/return. Time is very important something none of us can recover from
    If a stock looses 7% you need a 7% return to break even. Losses more than that it is a much longer return to get back to even
    That said if stocks you hold decrease in value 20% figure out how much it has to
    Increase to break even

    Eye opening

  2. Dear Grant Wasylick: Thank you for the most informative strategy report, 7 tips to survive the next-bear market-23835. This helps me confirm what I learned from several other wise
    investor experts over the past 40 years. I have attempted to follow most of these great tips and avoided most of the 2008 crash. I have recovered those losses and hope to prevent making the same mistakes on our next correction. This is why I am reluctant to invest into anything I do not understand, or consider too risky. I do not like to loose money! My wife and I are happy to keep what we own now and enjoy our retirement after working for 35 years to build our nest egg. I look forward to reading more of your team’s work. Best regards, Davis M. Bernier

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Originally from Pennsylvania, Grant graduated from Juniata College with an economics major and accounting minor. Since graduation, Grant has worked in the investment industry for almost two decades by serving in various roles … Prior to coming to…