brown bear looking at cameraIf you are going to invest in the stock market for any meaningful amount of time, you will at some point be faced with an angry “bear” market. A “bear market” is a sustained period of time when security prices are falling. Traditionally, a 20% fall in market prices is considered a bear market, but this survival guide is applicable to any downturn in markets, large or small. It’s an inevitable reality of investing, and your portfolio’s chances of long-term survival depend on how you act during these bear markets. In a bear market attack, just like in a real bear attack, your preparation and reaction will dictate your survival rate.

Here are three vital steps to help you survive the next bear market (because it will happen).

Step 1. Be Prepared

If a bear market catches you unprepared, your chances of survival are slim. To ensure survival, your preparation should be both mental and physical.

Mentally prepare yourself during good markets by acknowledging that bear markets, while completely unpredictable, do happen (and quite frequently at that.) Remind yourself often that bear markets happen, and never be surprised when the next attack comes along.

Practice Staying Calm

It’s also imperative to recognize that your emotional state will impact your rational decision making, and can wreak havoc if not kept in check. It’s one thing to tell yourself, “I can handle my investments losing 30%, because I’m in it for the long haul” when markets are good; it’s something else entirely to actually stay calm and do that when faced with an angry bear market. (Having a trusted advisor to help you keep a level head can be an invaluable tool in these moments of panic.)

Diversify Your Investments

In addition to mental conditioning, physically prepare yourself by diversifying your investments. While diversification won’t protect you from a general market downturn, it will help to lessen the blow and avoid any isolated downturns that impact just one stock, sector, or region. Bonds can also add a stabilizing factor that you can use to rebalance from or, if you are currently withdrawing assets, to liquidate instead of the equity assets.

Step 2. Don’t Panic

While the classic bear survival advice about “playing dead” may not seem applicable here, it’s actually a much better response than most investors manage during a bear market attack. Pretending you’re dead means you aren’t out there frantically selling all of your investments in a panic at the worst possible time.


Take a deep breath and remember one of my favorite sayings: “This too shall pass.”

Panicking Will Cost You

DALBAR performs an annual study that attempts to measure the impact of investor’s behavioral mistakes (The Quantitative Analysis of Investor Behavior, QAIB) on their long-term returns. Looking at 20-year rolling periods, the study concludes that average investors miss out on approximately 6% of market returns (annually!) in large part due to them panicking during bear markets.

Assuming you have a pragmatic plan with well-diversified investments, doing nothing is very often better than the alternative.

Step 3. Be Confident

Okay, so you’ve prepared by diversifying your investments and you’re managing not to panic even when everyone around you is frantically selling their investments. Your survival is practically ensured! However, that can quickly change if you lose confidence as the bear market wears on.

Stay The Course

If you’re investing, you should have a plan. Now is the time to be confident in that plan and continue to implement it. If you’re saving money, don’t stop saving. If you have a target allocation, rebalance back to that allocation (which will most likely mean selling the investments that are doing well and buying more of the investments that are doing poorly).

Consider this: historically, the portfolio survival rate for investors who were prepared, didn’t panic, and confidently maintained their investments is 100%, even during the most ferocious of bear market attacks.

Don’t Give In!

Internally and externally, you will be assaulted by emotions, family, friends, co-workers, “advisors,” and media screaming one message; “the market is doomed, this could be the end!” Always remember that no one can predict the future, and the most important thing we can do is have a process and plan that will give us the best chance of success.

How NOT To React In A Bear Market

While you most likely have heard these tips before, the sad reality is that most investors can’t manage to implement them on their own. Unfortunately, many people who don’t have the benefit of a great financial advisor react in exactly the wrong way. Studies have shown that portfolio losses, especially if you are constantly monitoring day-to-day movements of the markets, actually cause people physical pain. Our brains will be screaming at us to stop the pain, to do anything in our power to get away from what’s causing it. In this case, that means selling in a panic at (usually) the worst possible time.