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What Bear Markets Can Teach Us About Investing

Investors often bemoan a bear market, worried it’s a sign of an extreme or prolonged financial crisis. In reality, bear markets are a normal, expected and, for the most part, short-lived state of the market. They also play an important role for investors in that they provide valuable opportunities – if you are strategic in your approach to investing during a bear market. Here’s what UHNW investors need to know about bear markets – and why an Ultra-High Net-Worth Wealth Management firm can help you continue to grow and preserve extraordinary wealth during one.

3 Factors To Keep In Mind During A Bear Market

1. Bear markets are normal and expected.

A bear market occurs when a broad market index, like the S&P 500, closes at a 20% drop from its most recent high. On average, bear markets are short-lived, averaging around 9 months to a year, versus bull markets, which tend to have longer average lifespans of around 3 years. As a normal feature of the stock market’s behavior, bull markets need to be a part of your comprehensive financial strategy. Your UHNW wealth manager should have a deep understanding of your individual financial circumstance and risk tolerance so that they can provide a plan to protect (and even grow) your wealth during bull markets. Bear markets should come as no surprise to an UHNW wealth manager, who should be ready to employ proven strategies to mitigate your exposure and leverage opportunities during a downturn.

As Weber Global Management Partner and CIO, Chris Weber, has said of bear markets: “no bull market lasts forever – and it takes talent to get out in time. You can’t be afraid to either be in cash or, if you are lucky, shift to a sector that is still a bargain.”

2. Bear markets can be a time of incredible opportunity.

Partner and President of Weber Global Management, Briton Hill, doesn’t see bear markets as an obstacle to financial success. “Every bear market is different, so it’s important to identify the contributing factors as quickly as possible, in order to determine how to react,” he states. “Bear markets create extraordinary opportunities for those who are able to pivot in time and maintain liquidity.”

Consider this: over half of the strongest days in the market have occurred during bear markets. An additional 3rd occurred during the beginnings of bull markets, before they had been identified. What does this mean? It means it is incredibly hard to time the market, and it means not allowing emotion and anxiety to dictate your financial strategy can pay off. Yes, staying in the market is often the best way to weather a downturn, but, as we have often said, it is not as simple as “in or out.”

3. Bull or bear market aside, the market tends to trend up over time.

You’re going to hit bull markets, and you’re going to hit bear markets. Given time, the market will recover and, if your horizon is far enough away, you’ll likely win by staying in. In every decade, despite bear markets, the market has been up more than it has been down. Over a 50-year investment period, an average of 14 of those years will yield bear markets. The key is having a financial strategy designed to accrue and preserve wealth through the market volatility that you will inevitably experience in your investing lifetime. An UHNW wealth manager can provide a strategy to limit your downside risk in these situations, as well as leverage the opportunities that arise during bear markets. In bull and bear markets, emotional reactions can cause investors to make mistakes that can leave them standing on the sidelines when the market rebounds.

Your Best Defense In A Bear Market

At Weber Global Management, we put our global capabilities to work for Ultra-High Net-Worth investors in order to grow and preserve their wealth for the long term. Our approach includes developing a comprehensive understanding of their current financial landscape, their future goals, and their risk tolerance, creating an airtight strategy for weathering inevitable market volatility. If you’re ready to create a financial plan that is designed to leverage opportunity, even in downturns, and sustain wealth throughout your lifetime, reach out to us here.