Two Mistakes To Avoid During A Bear Market

As more and more headlines project economic downturns and stir up fear over a looming recession, it can be easy to worry and make rash decisions regarding your investment portfolio. That’s why in this episode of Aquila Wealth Podcast, Eric Maldonado (CFP®, MBA) shares two mistakes you can and should avoid during bear markets. Let’s dive in!

What is a bear market?

Experts typically characterize bear markets as economic downturns and sustained declines in the stock market. According to Forbes, a bear market occurs every 3.5 years on average and may last for several months. “It’s a drop in the stock market of 20% or more,” says Eric. “It’s when prices are dropping, your invested accounts are dropping, and it’s not good.”

Mistake #1. Panic Selling & Moving to Cash

“Mistake #1 to be avoided is to sell out of your positions,” says Eric. “Assuming you have a properly diversified portfolio of businesses, companies you’re invested in, retirement accounts, and then all of a sudden you’re seeing prices dropping, reading headlines, and seeing the news, those start to take hold on your psyche.”

When concerning headlines and fear-mongering cause panic and worry, it can be easy to make quick, unplanned decisions about a financial portfolio. “It’s a mistake because it’s not a part of the plan. That was not initially instituted in order to reach your goals,” explains Eric. “If you sell, you’re not going to be able to get the growth or the gains to continue to make the improvements in your financial situation because you’re in cash, and cash doesn’t grow.”

Eric emphasizes that even though the stock market might decline, that doesn’t mean you won’t lose money with cash. “Someone might say, ‘Well, at least it doesn’t go down.’ You’d be right, but there’s also inflation. And by definition, you’re losing money because you’re unable to purchase as much every year.”

Mistake #2. Waiting Rather Than Investing

“Mistake #2 is similar to the first mistake; it’s keeping cash on the sidelines until it feels better to buy into your plan or portfolio you already had in place. A lot of times, we think, as humans, we can figure out the best time to get in. But there is no writing on the wall to tell you when the market will go back up,” explains Eric. “The market is a leading indicator, so usually, by the time things have gone back up, it’s too late, and you’ve messed up.”

Conclusive Thoughts

In times like these, work hard to stick to your original investment plan, regardless of the current economic outlook. Invest as you would normally, whether that’s weekly, biweekly, lumpsum, or with a bonus check.

If you’re having serious doubts, rather than making decisions independently, consider consulting with a certified financial planner. We help people invest, grow, and build wealth for lasting impacts on their future. If you have any questions, don’t hesitate to contact us! We’re here to help.