Navigating equity bear markets requires greater-than-usual patience.

 

Given the potential cost of missing periods of strong returns, the more suitable course of action for most investors is to remain disciplined and invested.

 

Corrections Are Normal

Equity markets are contending with another spell of uncomfortably high volatility. While sharp corrections and prolonged bear markets are unpleasant, they are a regular occurrence of the stock market cycle. Since 1928, the S&P 500 has experienced 27 bear markets—defined as declines of 20% or more—with many of these severe corrections coinciding with recessions. More broadly, this means investors should expect a bear market, on average, once roughly every four years. Maintaining discipline is crucial Market corrections tend to set off emotional responses for investors. When volatility rises sharply, it is tempting to anticipate further declines and/or to take action. Recent market conditions have certainly tested the mettle of investors. But for investors with a well-devised investment plan, resisting the impulse to deviate from the long-term plan is important during the inevitable “cold stretches” in equity markets.

 

 

 

 

Time In The Market Matter More Than Timing The Market

Precisely timing the market peaks and troughs requires three conditions: avoid selling as the market continues to move higher; sell at the top; and time the re-entry at the bottom. Even with a healthy dose of luck, the possibility of consistently fulfilling all three conditions across multiple market cycles is extremely low, particularly since history shows that the market’s strongest rallies have often followed the sharpest drops. As the charts illustrate, the more suitable strategy is to stay disciplined and invested, which can help keep investors on the trajectory towards achieving their long-term financial objectives.

 

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