Three things investors can do to survive this bear market and thrive in its aftermath.
Topics covered include:
- What are bear markets, how often do they occur, and how long do they last
- How the current bear market differs from previous ones
- How severe have losses been for various asset classes
- How have asset class long-term expected returns changed since last November when the sell-off began
- What actions can investors take to make it through this bear market and take advantage of opportunities
Show Notes
US Leading Indicators, Updated: Friday, June 17, 2022—The Conference Board
Investment Mentioned In this Episode
The Vanguard Total World Stock Market ETF (VT)
ARK Innovation ETF (ARKK)
iShares Edge MSCI Intl Value Factor ETF (IVLU)
Vanguard Total Bond Market ETF (BND)
iShares 20+ Year Treasury Bond ETF (TLT)
Barings Corporate Investors Fund (MCI)
BlackRock Debt Strategies Fund (DSU)
Episode Sponsors
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Transcript
Welcome to Money For the Rest of Us. This is a personal finance show on money, how it works, how to invest it, and how to live without worrying about it. I’m your host, David Stein. Today’s episode, 391. It’s titled “How to Survive a Bear Market.”
Bear Market Definition
A bear market is a stock market decline greater than 20%. The Vanguard Total World Stock Market ETF (VT) has returned negative 21% year to date. The S&P 500 Index, a measure of U.S. stocks, has returned negative 22% year-to-date.
This is the eighth bear market for global stocks since 1987. They occur about every three years on average, although our previous one was only two years ago, back in 2020. Bear markets have lasted about one year on average, with an average decline of 30% as measured by the Dow Jones Industrial Average going back to 1901.
Comparing Bear Markets
I have lived as a professional investor, and then subsequently, I guess, as a professional podcaster, through five bear markets. The first that I remember as an investment advisor was the 2000–2002 bear market. This was the internet stock market bubble and crash, and growth stocks sold off significantly also.
But I remember this bear market because value stocks held up much better, and most of our clients by then had rebalanced at least back to value, if not had a value tilt. Other asset classes like equity REITs did well during that bear market, and we survived.
The 2007 to early 2009 bear market was much, much worse. Everything sold off, both growth and value. We saw 60% declines for stocks. It felt awful. Most of my personal wealth at that time, at least my publicly traded portfolio, was in cash. That’s not something I do anymore.
But at the time, it was easier to do, because I had less wealth. And I had seen the debt bubble, the housing bubble, and I took a big risk and moved everything to cash, and it worked out. I had no idea it would be that severe.
Most of our clients that had diversified portfolios—their portfolios sold off overall around 25% for that bear market. But then they did incredibly well as we positioned for the recovery.
The 2011 bear market was for global stocks, but the U.S. didn’t actually reach an official bear market level. But it was short, only about five months.
But those five months felt bad. And it was during those five months that I decided to leave the investment business. I was just tired of managing assets and the risk of navigating bear markets and bull markets.
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