Smart Money Maneuvers for a Bearish Stock Market

As the stock market downturn continues, investors are getting jittery. With little sign of a quick recovery, the bear market looks set to become the defining trend for 2022. There is no knowing when the downward cycle could end, yet some are dusting off the stock market history books for clues.

According to a recent statement by Bank of America's chief investment strategist Michael Hartnett, the past 19 bear markets saw an average decline of about 37% and lasted roughly 289 days. If 2022's bear market follows this historical precedent, it should end in October, with the S&P bottoming out at around 3000 points.

While impossible to predict precisely how this one will go, practical advice from experts can help weather the storm. Moreover, these suggestions can be tailored to investors, depending on their personality, strategy, and other factors.

Wait and (Don't) Watch

Those struggling to calm their nerves as things move into the red could benefit from simply looking away for a time.

“It may sound simplistic, but our advice would be to not look at the market so often,” Scot Johnson, Chief Investment Officer at Adell, Harriman & Carpenter, told WealthofGeeks.

“The stock market always has been, is now, and always will be volatile. It's an adult-level roller coaster with all the thrills and scares. For patient investors, the reward for riding out the turbulence has been quite handsome.”

“Have a long-term investing plan in place, and let it work for you over time. Watching the market like a hawk can be unsettling at times, and most investors would be better off not watching so closely,” Johnson added.

Patient investors often use simple, passive strategies that do not need their full attention so they can direct their attention beyond the daily news cycle.

Dollar-cost Averaging

One such strategy is dollar-cost averaging, which advisors also recommended as a sound strategy for bear markets. Dollar-cost averaging is a method where traders increase their investment in a given stock by a set amount and at regular intervals, regardless of the share price. This makes it a more reliable strategy than waiting until the downturn has reached its lowest point and trying to ‘time the dip.'

“Dollar-cost averaging is a great way to get into the markets without worrying about timing your purchases, and it's possible this could be beneficial in times like this,” Blaine Thiederman, Founder of Progress Wealth Management, told WealthofGeeks.

“The issue is, most bear markets and recessions don't last long, and historically buying in the middle of one (even if you don't time it perfectly) is a great time to buy so long as you go in with your eyes open and with proper expectations,” Thiederman added.

By taking out the guesswork, dollar-cost averaging can make investing in a bear market less scary too.

“It is a way to keep your emotions at bay and avoid any negative money behaviors that could hurt your investment performance,” Nathan Mueller, Financial Planner at Blackbird Finance, told WealthofGeeks.

“Dollar-cost-averaging is a fantastic way to take emotions out of investing decisions – especially in unsettling market conditions,” Johnson added.

“The broad stock market is lower than six months ago, but investors employing a dollar-cost-averaging strategy have been buying stocks at lower prices. We may not have seen a recovery yet, but if history is a guide, then the long-term trend in stock prices is upward,” he noted.

“The trend certainly isn't a straight line, and dollar-cost-averaging means some of those purchases will occur when the market is on sale.”

Rock-solid Verticals?

While some verticals, like tech stocks, can be notoriously volatile, others can be relatively resilient to market shocks. As a result, some advisors see betting on these safer industries as an effective hedging strategy.

“Health Care tends to be pretty resilient,” Johnson said. “We don't stop needing medical care because stocks are in pullback mode or the economy is struggling.”

“We've had some notable rough patches over the past 25 years for both the stock market and the economy, but Health Care is the only sector of the S&P 500 that has grown earnings every year for the past 25 years.”

The recent pandemic has spotlighted health companies and has been a boon for drugmakers. With the potential for more pandemic and public health outbreaks going forward, health does look like a safe bet.

Yet other advisors, like Thiederman, thinks picking verticals may be unwise.

“If you're interested in certain types of stocks that are more ‘shock-resistant' than others, you may have misguided intentions because whatever industry or sector you choose, you could be wrong,” he warned. “Instead, I'd urge you to stop trying to figure out the future because even professionals have a hard time creating any process for telling the future of the stock market.”

“Stick to what we know for sure. Passive portfolios that are created with your goals and risk tolerance in mind haven't just historically outperformed their actively managed competitors after fees, but typically are more reliable,” Thiederman added.

“The best decisions in markets like this include reevaluating how well-diversified your portfolio is… and finding a way to make it easier for you to stay disciplined and not think about the short term returns (stay focused on what really matters, the long term),” he added.

Go Long

Downturns can seem frightening to investors while they are happening. Still, from a long-term perspective, bear markets offer an excellent chance for gains.

“The longer an investor's time horizon, the greater the likelihood they'll come out ahead,” said Johnson.

“If investors believe the long-term trend in stock prices is upward as it has been historically, there's now an opportunity presented to buy at substantially lower prices than six months ago. There's a lot to be said for buying something you want to buy at a lower price than you expected to find available,” Johnson added.

“If you're a long-term investor, the market has been putting things on sale for you… keep in mind that at whatever price you pay, even if the market goes down a bit more, you still got a discount on the stock. It might not be a 20% discount, but you may have gotten a 12% discount, which is still good,” Mueller added.

There are many ways to ride out a bear market. Whether an investor opts to diversify their portfolios, continue dollar-cost averaging, try to ‘buy the dip,' or just wait out the downturn will largely reflect their personal investing goals.

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This post was produced and syndicated by Wealth of Geeks.

Image Credit: Pexels.


Liam Gibson is a journalist based in Taiwan who regularly publishes in Al Jazeera, Nikkei Asia Review, Straits Times, and other international outlets. He also runs Policy People, a podcast and online content platform for think tank experts.