S&P 500 Bear Market: How to Protect Your Investments
As the S&P500 continues to slide into the bear market, down more than 24% from its January peak, many investors are concerned about what this means for their investments.
The unfortunate reality of bear markets is that no one knows for sure how long they will last or how severe they will be. That said, there are still a few things you can do now to keep your money as safe as possible.
1. Try to avoid making emotional decisions
When stock prices fall, many investors’ gut feeling is to get all their money out of the market. While this may feel like the right decision at the moment, it can be a costly move.
Many stocks have experienced price falls in recent months. That means if you sell your investments now, you’ll likely end up selling for less than you paid for them and potentially incur hefty losses.
While easier said than done, one of the best steps you can take right now is to keep your money in the market. Eventually, stock prices will recover. When that happens, your investments should bounce back and you won’t have lost anything.
2. Keep a long-term perspective
Again, no one knows exactly how long this market slump will last. But historically, the market has an impeccable track record of recovering from bear markets.
In fact, the S&P 500 has experienced 21 separate bear markets since 1928 (not counting the current downturn). That means it has fallen by at least 20% every 4.5 years on average. Still, she’s managed to recover from every single one of those slumps.
^SPX data from YCharts
In the short term, the market can be volatile. But over the long term, consistently positive average returns are achieved. While it’s not always easy, try your best to maintain a long-term outlook during times of volatility. Things may be tough now, but they will get better.
3. Keep investing (with two important caveats)
Bear markets are stressful and unnerving for most investors. But the silver lining is that they can also be fantastic buying opportunities, and could potentially save you big bucks.
Stock prices are at their lowest in months, meaning you now have a chance to supercharge quality stocks at a steep discount. If there are specific companies you have your eye on, it’s a wise time to buy while the stock market is essentially in a sell-off.
However, there are a few caveats to keep in mind. For one, make sure you’re investing in the right stocks. Just because a stock is cheaper right now doesn’t necessarily mean it’s a smart buy, so make sure you do your research before investing.
When in doubt, investing in an S&P 500 index fund or exchange-traded fund (ETF) like this is a safe option Vanguard S&P 500 ETF (VOO 0.36%) or iShares Core S&P 500 ETF (IVV 0.34%). These funds track the S&P 500, which means they have a strong chance of recovering from this downturn.
The other caveat is to check your emergency savings. It’s best to avoid investing any money you may need for the next few years. So if you’re short on cash or don’t have a healthy emergency fund, it might be wise to focus on these priorities before investing.
It’s normal to feel nervous about investing during a downturn, but even the worst of bear markets are temporary. By keeping a long-term perspective and taking advantage of this buying opportunity (if you can take it), your investments can emerge from this downturn stronger than ever.
Katie Brockman has positions in the Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.