Market downturns can be unnerving, especially when the headlines flash red and account balances drop. A bear market, defined as a decline of 20% or more from a recent market high, can feel overwhelming — but with the right mindset and strategies, it doesn’t have to derail your financial journey.
Bear markets happen more often than many people realize. They tend to occur every two to five years, triggered by rising interest rates, economic slowdowns, geopolitical events, or simply because the market needs to digest after periods of strong growth. While they are uncomfortable, they are also part of a normal investment cycle. The key is knowing how to navigate them.
The first step is to keep a long-term perspective. Investing with a focus on the years ahead, rather than the day-to-day noise, is critical. That doesn’t mean ignoring your portfolio. It means holding strong, diversified investments that fit your goals and risk tolerance — such as broad-based exchange-traded funds (ETFs), carefully selected equities, and alternatives. Staying focused on your long-term vision helps you avoid knee-jerk reactions that can cause lasting harm.
Another important consideration is cash. How much you need depends on your stage of life. If you are in the accumulation phase, still adding money to the market, you may not need to hold much cash in your portfolio — in fact, bear markets can present buying opportunities at discounted prices. But if you are in the distribution phase, drawing on your portfolio for income, having six months of cash or cash-like reserves can be essential. This buffer allows you to cover living expenses without being forced to sell investments at a loss during a downturn.
Equally important is maintaining your composure. Bear markets often dominate the news cycle, with dramatic headlines and fear-driven commentary. While these periods do reflect genuine economic challenges, they also present opportunities. Having cash on hand not only provides stability but also positions you to deploy capital when attractive investments become available.
Rebalancing your portfolio is another crucial step. Over time, certain areas of your portfolio may grow faster than others, leaving you overexposed to one sector or asset class. Regular rebalancing — quarterly, semi-annually, or even annually — helps you lock in gains, harvest losses, and maintain a balanced allocation. This discipline can make bear markets less painful and set you up for recovery when markets turn upward.
Keep these core principles in mind when navigating a bear market:
- Keep a long-term perspective and invest in alignment with your goals.
- Maintain appropriate cash reserves based on your financial phase.
- Stay calm and avoid emotionally driven decisions.
- Rebalance your portfolio to manage risk and capture opportunities.
Bear markets can test your patience, but they don’t last forever. With preparation and discipline, you can weather the downturns and even find opportunities hidden within them. The most important thing is to avoid panic, lean on professional guidance, and let your long-term plan guide your decisions.
Financial Enhancement Group is an SEC Registered Investment Advisor.
