How To Survive A Bear Attack

I seem to write a primer on how to survive a bear market sometime each year – even though statistically speaking bear markets (defined as declines of 20%+ from peak to trough) are fairly rare, occurring on average about once every 5 years. They are not possible to predict (actually, I take that back, you can predict one every day as people often do, and you will eventually be right, but you will have likely paid a large price for being out of a market that has risen 30%, 40%, 50% or more while you were sitting on the sidelines. These people often proclaim victory that they avoided a 22% decline, but they fail to point out that they would have been much better off being invested the whole time even after factoring in the sell-off).  Bear markets take on all shapes and sizes as the impetus is usually something unexpected.  It is also not possible to determine when the 6% decline quickly turns into a 10% gain and never gets into correction territory (10% - 20% decline), let alone becomes a full-fledged bear market.

It is now March 2026, and investors have been waiting anxiously for the next bear market (the S&P 500 almost hit bear market territory in the Spring of 2025 but not quite), which seems to have been ‘around the corner’ for nearly 5 years (along with that nasty recession that has yet to occur while our economy, employment, etc. keeps humming along).

Truth be told, the last one we had – associated with the onslaught of the pandemic – was so short-lived and based on such an unforeseeable, literally once-a-century-type event, that it actually received somewhat of a ‘pass’ in the annals of bear markets. US stocks took a mere 36 days to fall over 20% and recorded the fastest 30% decline on record. The rebound, however, was equally rapid, the market recouping its losses within months. The average bear market lasts closer to 9 or 10 months. Bear markets occur for a variety of reasons, ones in the last several decades emanating from events like the pandemic of 2020, the terrorist events of 9/11, the overleveraging of the housing market and subsequent bubble bursting (and recession) of 2007-2008, and sometimes for no obvious reason at all like the crash of October 1987.

So, if bear markets are not predictable in terms of their timing and duration, how should an investor ensure he is prepared for the next one? Here are some tips:

• Understand, before you invest a penny, that stocks can decline in the near term for reasons known and unknown. Over time (e.g. 3-5+ years), a well-diversified portfolio of stocks tends to go up. As such, prepare yourself accordingly, and if you don’t think you can handle such inevitable drops emotionally or financially, then don’t invest in stocks – or better yet work with an investment professional who can help you overcome these fears and set forth a plan that will get you through the ups and downs to a better financial tomorrow.

• Always allocate capital you will need in the next couple years to something other than stocks (cash, short term bonds, etc.). Do this regardless as to whether we are in a bear market, bull market, or sideways market. Remember, there is no bell announcing when the music will (temporarily) stop, thus be disciplined.

• Just as though you will not be able to predict, let alone time, when the next bear market will occur (and nor do you need to in order to achieve your various financial/investing goals), you will not be able to predict nor time the rebound. In the case of the 2020 bear market, the 50 days following the March low represented the best 50-day market rally in history. If you sold in a panic this Spring and waited for things to become ‘clear’, you sold low and invariably bought high – or worse yet you’ve been in cash this entire time and missed several hundred % increases since. Compare that to someone who ignored even the fastest bear market in history; she is doing just fine and got to avoid all the stress along the way.

• Resist looking at your stocks/the market/headlines day to day. If you have a sound plan in place, then other for ‘entertainment’ purposes (and having your blood pressure rise is hardly a great form of entertainment), there is no need to be checking in daily. I am pretty confident that there are much better, less stress-inducing forms of entertainment. More to the point, when we are looking at something constantly, especially if it is going against us, we often feel the need to ‘do something’ (this is typically a psychological need to be in control). That something is very likely to not be in our best long-term financial interest, no matter how much it satisfies a short-term itch.

• As I’ve discussed in previous Coastwise newsletters, in exchange for potentially benefiting from the superior long-term returns equities can offer, you need to be able to withstand some short-term ups and downs along the journey. Accept this. Prepare for this. Don’t fight this or pretend these realities don’t apply to you. At a minimum ignore these fluctuations for your long-term money, ideally take advantage of them through regular market contributions (either through a retirement account and/or reinvested dividends) leading to powerful dollar cost averaging. Be honest with yourself – if you feel you don’t have the emotional fortitude to resist making bad decisions (and most people do not have this discipline if working just on their own), then partner with an investment professional with decades of experience who can help you navigate choppy market waters.

As a final and probably most important point, create a financial plan – and an investment program within that – which will allow you to achieve your goals regardless of what happens to the near-term stock market. If you have set aside funds to cover near-term needs (in the next 1- 36 months for example) in short-term fixed income (bonds, money markets, etc.), then by definition you will have these needs covered regardless of what happens to stocks over that time period.  What about the stocks you hold for needs beyond 3 years – what if they are declining in the near term?  At worst, it is irrelevant since you don’t need to sell them for 3 years or more, and the probability that stocks have recovered by then is very high.  At best, you will be better off financially since if you own the right stocks, you’ll be reinvesting dividends at lower prices (dollar cost averaging) and your company will be buying its own stock back at lower prices, both of which tend to have the effect of increasing future income and overall returns.

With all that said, there is always room for making portfolio revisions on the margin (not buying stocks on margin!), so if you feel the need to take action, review your situation with a financial professional who can guide you to making decisions you won’t regret when broad markets recover – as they have done 100% of the time since the first US stock index was created in 1884 (the Dow, named after Charles Dow).