There’s lots of advice out there about how to weather the current bear market. Most investment experts tell us to avoid rash moves, but no one is suggesting that you just pull the covers over your head and wait until it blows over. The S&P’s decline, the housing market problems, rising energy costs, and inflationary trends are all harbingers of a tough time. As most pros will quickly tell you, the stock market is cyclical. Those who profit are those who are in for the long-term—investors who know that rocky times make for future gains. Those who’ve weathered a few market cycles, including rampant inflation in the 1970s and the tech boom and bust at the end of the ‘90s, keep a few truisms in mind when their spirits start to flag. Here are a few pointers that may help you avoid emotional reactions to logical mechanisms:
- Have a plan for this bear market and stick to it.
That doesn’t mean that you shouldn’t sit down periodically to rebalance your portfolio. Rebalancing will allow you to simplify your holdings or takes some profits to buy cheaper stocks that are expected to rebound. What you do in a bear market determines how well you’ll fare when the bulls return. With this in mind, reviewing your strategy with your professional investment and tax consultants is a smart move; knee-jerk reactions are not. With market performance so unpredictable, this is not the time to be making short-term bets on the market.
- Be willing to “tweak” your portfolio, if needed.
If this bear market sticks around for a while, and statistics suggest that if this correction proceeds like others over the last 50 years, we’ll have about two years or so in the doldrums—it may require you to make some adjustments now to ensure that your long-term strategy stays on target. It may make sense to take some tax write-offs or to look for a tax-swap (a device that allows you to make tax savings by selling what you hold in a losing money fund and reinvesting the money in a similar fund).
There are some IRS provisions that might stymie this plan—be aware that the fund you plan to purchase with the proceeds must be different from the losing fund you are selling. Your tax professional can explain the pros and cons of this idea.
- Tune out/turn off the daily chatter from the business media
Be an educated investor and read widely on investments, monetary and tax policies, government and the global economy, but don’t allow the daily barrage of nay-sayers and doom-merchants in the newspapers and on cable and network TV to dictate your investment decisions. Remember their job is to generate readers (or viewers) and that bad news-- disaster, dire predictions and woe—are guaranteed audience-getters. The third-party experts used to provide validity to a particular view point are not necessarily in possession of extra special knowledge. They are selected to participate based on many factors—including their “on camera presence” and immediate accessibility.
- What goes up must come down …and vice versa
It’s worth repeating that the market, by its very nature, will have both slumps and rebounds. The winners in the next bull market will be those who recognized the opportunities in the current bear run. A cool head and a sharp pencil will stand you in good stead at times like these.