3 top tips to survive a bear market

The current coronavirus pandemic has wiped billions off global stock markets. In the world of investing, such markets where share prices experience prolonged price declines are known as bear markets. A bear market describes a situation in which stock markets fall 20% or more from recent highs amid widespread pessimism and negative investor sentiment. They are often associated with declines in an overall index or market like the FTSE All-Share, but individual securities can also be deemed to be in bear market territory if they experience a decline of 20% or more over a prolonged period of time—typically two months or more.

The FTSE 100 has recently moved into the fifth such downturn since its launch in 1984 and the FTSE All-Share its eleventh bear period in its 58-year history. The average bear market in the FTSE All-Share has gone on for 385 days and produced a 37% drop in the index, although the longest bear market in 2000-03 was 1,167 days and the shortest in 1981 only 42 days. The biggest and smallest falls of 72.6% and 21.5% were in 1972-75 and 1981, respectively.

Surviving a bear market isn’t easy, but you’ll be pleased to read that in all ten previous instances, the FTSE All-Share has completely made up the ground in the next bull market, a market where share prices are rising. Unfortunately, it usually takes longer for markets to rise than it does for them to fall. This is because bear markets are typically characterised by short, sharp and intense declines. But it also comes down to maths: if an investment loses 50% of its value, it has to double to get back to where it began.

If you’re worried about the damage caused to your investment portfolio by the spread of Covid-19, here are our three top tips to survive a bear market.

1. Stay invested

Staying invested even when markets are falling can be wise because if you sell, you own less shares that can potentially gain value when the markets start to rise again. Stock market investing is best conceived as a long term game played over years rather than months.

2. Don’t try to predict the bottom of the market

For those of us who don’t have a crystal ball, it’s impossible to foresee exactly how low markets will fall. Taking a slow and steady approach to investing is probably your best bet. This might result in a lower return than going all-in, but by drip-feeding money into the markets you’re reducing the risk of losing a substantial proportion of your capital in one go.

3. Make an investment plan

A sound financial plan can help you to stay focused on your long-term aims without being distracted by short-term market movements. The best way to formulate your plan and ensure it stays on track is with a professional financial planner.

If you’re interested in striking up a relationship with a financial adviser, you might want to look out for advisers who have the acronym CFP next to their name. CFP stands for Certified Financial Planner and confirms that the adviser has passed the CFP exam, thus meeting the requirements of the CFP board.

With lots of certifications available to financial professionals, the CFP designation stands out. One of the most significant requirements of the CFP is the fiduciary—or trustworthiness—aspect. This obliges all CFP title holders to put their clients’ needs ahead of their own.

If you’d like to discuss your investment strategy with us in more depth, do get in touch. You can call us on 01789 263888 or email hello@charterswealth.co.uk.

Investments carry risk. The value of your investment (and any income from it) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.