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By Scott Wohlers
Vice President, Riverplace Capital

No one can truly predict a bear market or how long one may last. The typical bear market persists between 6 to 18 months. However, how you respond at the onset and how you handle yourself during that time can often determine how well and how quickly you recover. Too often, investors make rash, emotional decisions to their detriment when markets become shaky. These mistakes can be incredibly costly. Investors can not only lose tremendous amounts of money; they may have to work longer foregoing retirement, or be forced to re-enter the workforce. These mistakes can be avoided if you have the right plan in place to handle market disruptions. In this article, we lay out some fundamental points that every investor should have in planning for a market correction or downturn.
Let’s start by clarifying what exactly a “Bear Market” is. According to the Securities and Exchange Commission (SEC), a bear market occurs when prices fall steeply by 20% or more over at least a two-month period. Far too often during a bear market, people make emotional decisions that cost them dearly in the long run. Fear takes control and rational thinking goes out the window, especially if one doesn’t have a plan to handle increased volatility or market shocks.
So, what should you do and how should you proceed to invest in a bear market? Have an emergency investment plan and stick with it. Planning for an eventual market downturn is essential to secure long-term wealth and performance of your portfolio. Just like preparing an escape route at your home in case of a fire, and having a hurricane preparedness kit for hurricane season, investors need to have a plan in place for a bear market. What happens far too often is investors will ride the market down and right as it is nearing or is at the bottom, they pull their money out of the markets. Then once the market has almost fully recovered, they put their money back to work in the markets due to the fear of missing out. However, they pulled their funds at the bottom and have now bought back into the market a steep premium to where they were. Had they made an investment plan for emergencies, and then followed their plan, chances are they would be in a better position than they were before the market disruption.
When investors make these mistakes during a bear market it can cost them dearly, not just monetarily. It can affect when and if they can retire. Making a big mistake in the markets could cost you dearly in both time and money. Pulling money that you have invested out of the markets while the market is going down, whether it is in a brokerage account or 401(k), doesn’t allow those funds to truly recover. Anyone who tells you they can time the markets is being foolish as no one has a crystal ball. However, the historic return in the stock market is around 9%; that is accounting for all downturns and corrections that have taken place. Do not make the mistake of pulling all of your money out of the markets when a bear market happens, it can cost you years in retirement. Remember to stick to your plan on what to do during a downturn or correction.
Now that we have discussed what not to do during a bear market, let’s talk about what investors can and should do during one. What you do during these times can really set you up for future success. How you position yourself during a bear market gives you an opportunity to take advantage of the situation versus reacting in an emotional way and causing yourself much damage? Below are some key points when putting together your plan on how to manage through a bear market:
• Don’t panic; remember, someone else’s fear is another’s opportunity.
• Do make sure you have enough liquidity to meet your immediate needs and those for several months. No need to go overboard here! Riverplace Capital does that assessment for our clients as a matter of course.
• Don’t panic; take advantage of the opportunity – do some buying. Success might not be immediate, but chances are extremely good with time.
• Do use the downturn to evaluate your holdings. Weaker positions can be traded for stronger ones; they are both down.
• Keep focused on what will do well once the recovery arrives.
• Do take some losses. Losses are valuable. They can be used to offset earlier calendar year gains and can be carried forward to offset future gains. For every down position, there is probably another one that has just as much, or perhaps even more merit. A swap between the two books the loss but still leaves you in position to recover.
• Always remember this is a time when the wise and the brave set themselves up to thrive in the future.

Riverplace Capital has followed the above points through several bear markets, and we have come out stronger each time. We see them as opportunities to take advantage of what it is like to buy the market on a huge sale! The typical bear market persists about 6 to 18 months. Bear markets do end, and when they do, the market moves back up typically with a lot of velocity and very quickly. This lays the foundation for staying invested and sticking to your plan. Being out of the market or not being positioned correctly can cause you to miss out. It is important to create a plan before any type of event causes markets to shake; stick to your plan during, and enjoy the benefits after! If you have questions about how to put your plan together, talk with us!

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