These 3 questions will help to deal with the bear market and keeps your cool in downturns like this one. In fact, it probably makes you excited to find good quality investment to add at fire sale prices.
1. When do you need the money that is invested in the stock market?
If you don’t need the money for another 5 years plus, then a bear market should not worry you. When the markets go down or even collapse, it is not nice, but the stock market has always recovered over a longer period of time. In fact, a bear market was always the best time to buy or add to your investment portfolio. In fact, the only time you would have lost money over 10 years would have been if you had sold at the lows of the Great Depression or Great Recession. Even if you had bought at the highs in 2007, right before the 2008 financial collapse, and held for 10 years, you would have made money.
But you should not have funds invested in the stock market that you will need within the next 1-2 years because you can’t afford to be exposed to short-term risk. Anything can happen in the market the shorter-term period and you do not want to be forced to liquidate your assets a fire sale prices. So, always take out the capital at your convenience and high prices.
2. Can you handle a downturn emotionally?
You have to be honest to yourself. If a market sell-off in the market scares you and you lose sleep over this, a stock market investment is not for you. Take your money and invest in something much safer, like bonds, time deposits, or other save interest rate products. If you can not bear a stock market downturn, do not stress yourself. This kind of stress about financial matters breaks up relations, causes health issues and is miserable to live through.
3. Do you have more money saved and ready to invest in a market on sale?
If you have a plan and are prepared than a downturn in the stock market does not worry you. And if you see falling stock prices as opportunities to add more quality stocks to your long-term investment portfolio, than keep your cool and do exactly this. Do not try to time the market by jumping in or out or guess what will happen next. Just add slowly good stocks you identified or that you always wanted to have in your portfolio at fire sale prices.
Having a plan for a bear market will make it much easier to withstand.