BairdNext Insights: What is Different About This Bear Market?

BairdNext Insights is a quarterly series focused on the most important topics for young professionals. For this installment of the series, we discuss bear markets and what you can do to set yourself up for success.

Insight 1: Revisit Expectations of Bear Markets

US stocks officially entered a bear market in June of 2022, with the S&P 500 closing more than 20% down overall. This is not the first bear market young investors have encountered, so you might already have expectations for how quickly the market will rebound. However, over the past 75 years, the average bear market has taken about a year before it hits bottom. Given the current Federal Reserve’s focus on reining in inflation, their policies will make for a much longer and more challenging market than others in the past half-decade.

Insight 2: Consider Dollar-Cost Averaging

A strategy that may be useful to employ during a bear market is dollar-cost averaging. Dollar-cost averaging is a strategy through which you make regularly scheduled investments in the market. In down markets like today, it allows you to buy stock at a discount, and realize gains when stock value rises again. A long-term strategy like this can help you weather comparatively shorter bear markets, with no one purchase making or breaking your portfolio.

Insight 3: Revisit and Review Your Short-Term Goals and Long-Term Plan

To weather the storm, it is helpful to revisit your priorities and budget, in case you need to act in the near future. Actions may include building your emergency fund or delaying a major purchase, if necessary. Be sure to keep enough cash on hand that you aren’t forced to sell stock to stay liquid, which will hurt your long-term investment plans.

Take a moment today to recenter on your plan. It is very easy to fall into recency bias and become fearful of a short-term situation. Market volatility and bear markets are likely to happen, but staying invested for the long-term is consistently beneficial when investing. If you would like to create a financial plan dedicated to your long-term success or would like to reassess your plan, contact your Baird Financial Advisor.

The information reflected on this page are Baird expert opinions today and are subject to change. The information provided here has not taken into consideration the investment goals or needs of any specific investor and investors should not make any investment decisions based solely on this information. Past performance is not a guarantee of future results. All investments have some level of risk, and investors have different time horizons, goals and risk tolerances, so speak to your Baird Financial Advisor before taking action.