3 Timeless Investing Lessons From the Last 3 Bear Markets

KEY POINTS

As the S&P 500 slips into a bear market, it can be a nerve-wracking time to invest.
However, there are ways to protect your investments.
The market has survived plenty of bear markets in the past, and it will survive this one, too.

Here’s how to keep your money safe during a bear market.

As the stock market continues its slump and prices sink, it’s not easy to invest right now. Many investors are concerned that this bear market could turn into a recession. If you’re worried about your money, you’re not alone.

However, bear markets aren’t as intimidating as they might seem. Over the last two decades, the S&P 500 has experienced three bear markets: the dot-com bubble burst from 2000 to 2002, the Great Recession from 2007 to 2009, and the coronavirus crash in March 2020.

While these three crashes are different in many ways, there are a few timeless lessons all investors can learn from them.

Person sitting at a desk looking at charts.

IMAGE SOURCE: GETTY IMAGES

1. Downturns are only temporary

If history shows us anything, it’s that even the worst bear markets don’t last forever. Nobody knows for certain how long this downturn will last or how far stock prices might drop, but it’s almost guaranteed that the market will recover eventually.

Those previous bear markets weren’t easy, either. During the Great Recession, the S&P 500 fell around 57%. When the dot-com bubble burst, it dropped close to 50%. During the coronavirus crash, the market plummeted by around 33% in a matter of weeks. (For context, the S&P 500 is currently down around 23% since early January.)

Despite everything, though, the market eventually bounced back. No matter how severe this downturn becomes, things will get better.

2. Holding your investments is key

Although it may sound odd, one of the best ways to survive a bear market is to do nothing. Don’t sell your stocks, and try not to panic about falling prices. Simply hold your investments, and if you can afford it, keep investing like usual.

Regardless of how far stock prices fall, you won’t actually lose any money unless you sell. Your portfolio might lose value in the short term. But by simply holding your investments until the market recovers, stock prices will rebound and you won’t have lost any money.

Also, if you can swing it, downturns can actually be a smart time to invest more. Stock prices are lower than they’ve been in months, and the market is essentially on sale. By investing now, you can snag high-quality stocks for a fraction of the price.

3. Strong companies will survive

Not every company will be able to pull through a bear market, but strong businesses have the best chance of surviving even the worst crashes.

Many of today’s strongest corporations have already survived multiple bear markets. While there are never any guarantees when it comes to investing, there’s a good chance that these companies will pull through this one, as well.

Checking that your portfolio is diversified can also keep your money safer. When you’re investing in at least 25 to 30 stocks from a variety of industries, your money is more protected in case one or two of those stocks don’t survive.

Whether you’re an experienced investor or are just getting started, downturns can be nerve-wracking. But this bear market won’t last forever, and with the right strategy, you can keep your money as safe as possible.

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