Bear Market Emotions: Strategy vs. Reaction

This week, Craig Siminski, of CMS Retirement Income Planning, shares with us an article discussing how building a well-constructed portfolio over time can help carry investors through the market’s rough spots:

Market volatility is stressful for many investors, and 2022 offered plenty of stress tests. The bear market that began in early January sent stocks on a wild ride with far more downs than ups.

The S&P 500 hit its low point for the year in mid-October, down more than 25% from its bull market high. The tech-heavy Nasdaq was hit even harder, falling almost 36%. The indexes were still down by about 20% and 35% respectively at the end of the year.

Resist Temptation

It can be tempting to sell when faced with falling stock values, but that may not be a wise decision. Stock losses only exist on paper until you sell, so selling at the wrong time might just lock in losses and cause you to miss out on gains when the market turns upward.

On the other hand, it’s not always wise to invest too aggressively when prices are rising. While it’s natural to feel some concern about “missing out,” rushing into a “hot” investment may result in buying at an inflated price that doesn’t reflect the true value of the asset.

Stay the Course

In any market situation, it’s important to make investment decisions based on a consistent strategy rather than emotion. Consider this advice from famed investor and mutual fund industry pioneer John Bogle: “Stay the course. Regardless of what happens in the markets, stick to your investment program. Changing your strategy at the wrong time can be the single most devastating mistake you can make as an investor.”

This doesn’t mean you should never buy or sell investments. However, the investments you buy and sell should be based on a sound strategy — beginning with a diversified portfolio appropriate for your risk tolerance, financial goals, and time frame. A well-constructed portfolio can…

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Craig Siminski is a CERTIFIED FINANCIAL PLANNER™ professional, with more than 25 years of experience. His goal is to provide families, business owners, and their employees with assistance in building their financial freedom.

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