No time like the present investing in a bear market

No Time Like the Present: Investing in a Bear Market

Josh Calcanis
September 24, 2022

If you pay any attention to financial headlines, you might think now is a terrible time to invest. You can make a big mistake when the stock market is volatile, but it’s not investing during a bear market.

It’s Bear Out There

It’s official; we’re in a bear market. A bear market occurs when stock prices have declined at least 20% from their most recent high. What’s the most common cliche about making money in the stock market? “Buy low, sell high.” Despite all of the books, articles, blogs, podcasts, and TV shows, about how to make money in the stock market, there really is no secret, no alchemy or magic involved. Making money in the stock market is summed up in those four simple words. When are stock prices low? During a bear market.

It’s Simple But Not Easy

The biggest risk to successful investing isn’t a bear market, a recession, large-scale natural disasters, wars, or pandemics. It’s you. When the headlines are scary, new investors continue waiting things out before jumping in. And some current investors think, “Stuff this! I can’t take the stress. I’m getting out and going to cash until this settles down.” There are two problems with jumping out of the market in a downturn. Every yin has its yang, right? The yang to a bear market is a bull market. A bull market occurs when stock prices rise at least 20% from a previous drop. Let’s have a little history lesson:

Between 1926 and 2021, there were 17 bear markets with declines ranging from 21% to 80%. Each lasted an average of 10 months.
In that same span, there were 18 bull markets with increases ranging from 21% to 936%. Each lasted an average of 55 months.

You can see the first problem. If you jump out during a bear market, you miss the comeback, the bull market, which happens on average within less than a year and lasts, on average, about four years. The first best thing you can do when the market is volatile if you have an opportunity fund is to buy low. If that’s too much, the next best thing you can do is nothing. Just sit tight and ride it out. Investing is a long-con. We know that’s easier said than done. Our human psyche pushes us against that kind of inaction. Doing “something,” i.e., taking your money out of the market, feels better than doing “nothing,” ie leaving your money where it is. Action feels better than inaction. Even when we know, it’s the wrong move. And your money seems safe, all tucked into its FDIC-insured savings account. But inflation is eating away at that money’s spending power day by day to the tune of 9%. Not safe at all. If the scary headlines are giving you agita, don’t look at them!

You Don’t Need a Stock Ticker or Monocle

Now is a very good time to start investing. You can scoop up some real bargains. The recent Amazon and Google stock splits means you can buy a share of those two tech titans for a little over $100. A bargain for your average investor. Buying individual stocks does require some research. If you’re new to investing, the best place to start is with companies you know. If you love Apple products, research Apple stock. No worries if you aren’t interested in researching individual stocks. There’s nothing wrong with that. We get it. Personal finance isn’t the most exciting hobby! In that case, investing through an ETF might suit you better. An ETF is an exchange-traded fund. Funds that trade on an exchange and typically track a specific index. Your money is invested in a “basket” of assets that provide diversity, and diversity helps insulate you from the ups and downs of the market. You don’t need a ton of money to get started, either. Some ETFs don’t have a minimum to start investing. If your employer offers a 401(k), that’s another great option for new investors. The money is taken directly from your paycheck before you receive it, which is an excellent way to “pay yourself first” if money tends to burn a hole in your pocket. A 401(k) is a retirement account, so tax-advantaged. As such, there is a penalty for early withdrawal which can be enough of a deterrent for nervous investors during market downturns. The money is invested in a fund, so a basket of assets to provide diversity. And even better if you’re lucky enough to have an employer that offers matching funds! That is literally free money, something you should never turn down!

The Secret to Wealth

Most of us don’t make high six figures at our jobs, have trust funds or inheritances, and aren’t going to win the lottery. So in order to grow wealth, we have to invest. Investing long-term is the real secret to wealth. Start early, contribute regularly, and let it ride. It’s really that simple!