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Three Investing Moves You Can Make in a Bear Market

How to Make the Most of a Downturn
| By: Randall E. White, CFP®, RICP®, CRPC®, CMFC®

Three Investing Moves You Can Make in a Bear Market
Wednesday, 10 August 2022

After a tumultuous couple of years in the markets since the beginning of the pandemic, it’s official – we’ve entered into a bear market. When COVID-19 first hit the U.S., the market plummeted. However, it quickly bounced back with the S&P 500 rising up 100% from that low by August of 2021. Now that the days of government stimulus checks and near-zero interest rates are over, the market is again finding itself struggling to cope. As the Federal Reserve continues to raise interest rates in order to fight inflation, we’re seeing the effects play out in the downward market trends we’re witnessing today.

Below, we’ll discuss what it means to be in a bear market, and how savvy investors can weather the downturn.

A bear market occurs when a market experiences prolonged price declines, typically when indexes drop 20% or more from the previous high. Surprisingly to most investors, this happens on average more frequently than once every four years!  For even the most seasoned investors, a bear market can be alarming – especially if you have a significant amount of assets invested and feel like your financial stability is at risk. And even though the markets have a history of bouncing back, that doesn’t make a downturn any less stressful in the moment.

 It can be tempting to take your money and run, but it’s important that you don’t let your emotions get the best of you. The one thing NOT to do during a bear market is panic. More often than not, the best thing you can do is stay the course and trust your long-term plan. However, it can be scary to watch your portfolio balance drop, so here are three investing moves to help you make the most of a bear market.

#1. Rebalance your portfolio

Bear markets can be a great example of why it’s so important for your portfolio to be diversified, as not all financial assets perform well at the same time. Having a diversified portfolio means that when some of your investments are tanking, others with low correlation likely aren’t. Although it’s dangerous for investors to view market dips as a reason to make big changes in their portfolios, that doesn’t mean that you shouldn’t take this time to rebalance and ensure your asset allocations are still aligned with your risk tolerance and timeline.

Young investors may want to use this opportunity to invest more heavily in the markets since they have a long time horizon to benefit from the market’s recovery. Conversely, older investors may want to develop a plan to begin transferring more assets into lower-risk investments such as bonds and CDs once the market begins to recover.

It's ultimately up to you to decide how often you want to rebalance your portfolio. Some investors do it monthly, while others do it annually. At TriCapital, we do it based on a combination of economic conditions and each investor’s individual investment plan, but what’s most important is that you have a plan and execute it.


SEE ALSO:  The Current Market Decline and Minimizing Your Long-Term Regret

#2. Reassess and strengthen your investment plans

As stocks are falling, it may seem too late to create a well-thought-out investing plan. However, if you’ve been investing without a set plan or if you’ve been waiting for stocks to plummet so that you can “buy the dip,” now may be the perfect time to sit down and put a strategy into place. As you’re working on building out an investment plan, it’s important to remember that it’s impossible to know for sure what the markets will do and it’s also impossible to time the market. Nobody knows when stocks will hit bottom or what any asset will do on any given day. That’s why it’s so important to have an overarching plan in place to help keep you on track and disciplined with your investments.

Strategies like the tried-and-true dollar-cost averaging work because they exist outside of market trends. Making a plan to regularly invest a set amount of money each month means that you won’t miss out on the market’s best days because you’re too busy trying to guess when it’s a good time to buy. Plus, it minimizes your stress because you’ll know exactly when and how much you’re going to invest next.

#3. Focus on your tax strategy

If ever there was a silver lining to a bear market, it’s this: now is a great time to convert your traditional individual retirement accounts (IRAs) into Roth IRAs. IRAs are tax-deferred, meaning you invest pre-tax dollars into the account and then pay taxes on your withdrawals later in life. Roth IRAs work in the opposite way. You fund them with after-tax dollars but then the withdrawals are tax-free. If you’re looking to convert your IRA to a Roth IRA, doing so when the value of your invested assets is lowered could help you save money on the taxes you’ll have to pay on the conversion.

Another upside to the bear market is that you could potentially lower your tax bill with tax-loss harvesting. Tax-loss harvesting is a strategy that investors can use to help offset capital gains with capital losses, consequently lowering their tax bills and better positioning their portfolios for the future. Basically, investors can sell their investments that are priced at a loss for a tax write-off. Currently, the IRS allows taxpayers to offset up to $3,000 of ordinary income if your losses are bigger than your gains, but you can carry losses forward to future years if your loss is greater than the $3,000 limit.

These options aren’t going to be the right move for everyone so before you take any drastic steps, be sure that the benefit outweighs the risk.


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Navigating a bear market

Although a bear market can create some understandable anxiety, it’s important to remember that they’re normal. Since 1928, there have been 26 bear markets, but there have been more bull markets – times when stocks experience a surge. And even with all the volatility, markets are positive the majority of the time. Whether hot or cold, the market always provides opportunities for investors to make money – that’s one reason it carries such significant appeal. Ideally, the market would always be up – but that’s not realistic. So, it’s important to have a strategy in place for the inevitable downturns.

At TriCapital Wealth Management, every investment portfolio is matched specifically to our client’s unique situation and needs. If you’re worried about the bear market and feel as if you could benefit from a conversation with one of our advisors about your investment strategy, please contact us today


Securities offered through Triad Advisors, LLC, member FINRA/SPIC. Advisory services offered through TriCapital Wealth Management, Inc. TriCapital Wealth Management, Inc. is not affiliated with Triad Advisors, LLC.

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