Yes, You Can Beat The Bear (Here’s How)

I am a member of several Facebook groups centered around finance and investing. Lately there has been a lot of angst over the declining market. This comment reflected a common sentiment among group members:

“I have deposits that automatically go into my 401k, IRA, and brokerage account. I haven’t stopped the deposits, yet it feels incredibly counterintuitive to continuously deposit money into these accounts because I end up losing most of what I put in. It feels a little like bailing water out of a sinking ship.”

One of the hardest things to do is to buy when the market is sinking, yet it is one of the surest ways of building wealth over time. Large corrections happen, and then the market always recovers. To growth wealthy in the stock market, you have to think long-term. Short-term corrections are going to happen. If you ride out these corrections, you should profit in the long run.

Watch This Video: 10 Ways to Spot a Value Trap

What this person is doing is dollar-cost averaging. This is simply a strategy of making periodic investments into the market. Dollar-cost averaging is a great strategy when the market is declining, and you are worried about further declines. As the market declines, each periodic purchase nets you more shares than the previous purchase, lowering your overall cost basis. It’s a way of hedging your bets in a declining market.

Consider the fact that the market always recovers, and then notice that your fixed investments are buying more shares as the market goes down. If you invest $100 at $10 a share, you have 10 shares. If the share price declines to $8, your $100 bought you 12.5 shares. When your shares recover back to $10, your 12.5 shares are now worth $125. So, keep buying steadily, taking comfort in the fact that the market has always recovered from these declines.

Armed with that information, here is another piece of advice I can give you. Stop looking at your account value! During the bear market of 2008-2009, my 401K went down about 40%. That was a big hit. If I had been looking at the value every day, it would have been quite stressful.

However, I stopped looking at my 401k. I didn’t look at it for months. I kept thinking about the long-term. I automatically dollar-averaged cheaper and cheaper shares as the market went down. Then that bear market ended and we started the longest-running bull market in American history.

I know people who stopped investing in that 2008 bear market. They were like the person who posed the question above. Why should you keep investing if the market keeps going down? Well, because it eventually stops going down and heads back up, and you simply can’t know when that will happen.

Don’t think you can time the market. But it will eventually recover, and you will profit if you just stay the course and keep steadily investing.

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