Navigating the Pain of Your First Bear Market


Earlier this week I posted a chart showing how volatile the stock market has been this year:

Since then, things have become even more volatile.

This post prompted the following response from someone on Twitter experiencing their first bear market:

Yes, there are precedents for that.

These are all bear markets since World War II:

If anything, it’s surprising that the current iteration hasn’t shut down more.

Inflation is raging at a 40-year high. Interest rates are rising faster than ever. Federal Reserve officials are actively plotting a collapse in stock and housing markets. The Fed is trying to orchestrate a recession.

Still, the S&P 500 is only about 21% below its all-time highs. This isn’t even your average bear market.

Maybe we have to fall further. Maybe not. But either way, if you want to invest in stocks, you have to get used to it.

Here’s what I wrote about how I feel about downturns in my latest book:

In the next 40-50 years, I plan to experience at least 10 or more bear markets, including 5 or 6 that represent a stock market crash. There will also likely be at least 7-8 recessions during this period, maybe more.

Can I be sure of these numbers? You can never be sure when it comes to the markets or the economy, but let’s use history as a rough guide. In the 50 years from 1970 to 2019 there were 7 recessions, 10 bear markets and 4 legitimate market crashes with losses of over 30% for the US stock market. In the last 50 years from 1920 to 1969 there were 11 recessions, 15 bear markets and 8 legitimate market crashes with losses of over 30% for the US stock market.

Each of these bear markets and recessions has been unique in its own way. This is unlike anything we’ve seen before when you add in the pandemic, government spending sprees, negative interest rates, supply chain shocks, and the like.

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Markets are constantly changing and evolving over time. In a way, every bear market is different.

Otherwise it’s the same every time, especially when it comes to human nature, which is the only constant in the story.

Every bear market triggers panic and despair. They make you question your previous investment beliefs. They force you to consider whether you have the inner strength to stick with your long-term investment plan.

I won’t sugarcoat it for you – bear markets are painful. Every single one of them (even if you’ve experienced a handful in the past).

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But if you are a young investor, today’s situation is much better than 9-18 months ago.

The S&P 500 is now down a little over 20%. The Russell 2000 is down almost 30%. The Nasdaq 100 is down more than 30%.

Shares are for sale. They could be devalued further, but I don’t think too many young people will regret buying stocks now when they look back 15-20 years from now.

Can you believe where you could have bought stocks in 2022? Someone will say in the 2030s when millennials are in their prime earning years and gobbling up stocks.

Not only are stock prices lower, but you can finally get a return on your money.

For years I’ve been bombarded with questions from young people about where to put their money while saving for a down payment or a wedding or an emergency fund when there’s no return to be had.

Guess what?

We finally have some yield!

Short-dated government bonds are now yielding 4%. That means higher interest rates for savings accounts, CDs, money markets, and short-term retirement funds.

Financial asset prices have fallen but expected returns are rising.

As long as you regularly pay into your pension account, custody account or savings account, the situation has improved this year.

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It doesn’t feel like it because everyone is very angry right now at the combination of high inflation and rapidly rising interest rates.

It’s difficult to ignore all this negativity, so the best option for young people is to automate the investment process as much as possible.

Automate your savings so you don’t have to think about it. Automate your retirement contributions so you don’t let bad days or months mess up your multi-decade time horizon. Automate your asset purchases regularly so you’re not tempted to time the market.

The more good decisions you can make up front, the easier it will be to avoid the painful emotions brought on by the inevitable bear markets.

Things might get worse before they get better.

If you’re a net saver for years to come, that’s a good thing.

We talked about this question in the latest issue of Portfolio Rescue:



Taylor Hollis came to me this week to discuss questions about estate planning for a growing family, saving for retirement, buying or leasing a new car, earning income through options, and more.

Here’s the podcast version of this week’s episode:




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