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Financial Planning

How to Weather a Bear Market

Rich Oswald

Why it matters

  • Since the beginning of 2022, the S&P 500 index is down nearly 21%.1
  • A bear market, defined by equity markets being down 20% or more from recent highs, is upon us — at least for the time being.
  • Rather than panicking, investors have several proven strategies they can employ to help protect their portfolios.

If you’ve been keeping up on current events, you’ve no doubt heard about the recent market slide in the U.S. since the beginning of 2022. While the market is always in flux, certain sustained trends can prove to be harbingers of looming economic events like a recession. It’s important that your investment strategy focuses on time in the market rather than trying to time the market.

What is a bear market?

The definition of a bear market is when the equity markets are down 20% or more from their most recent all-time high.1 Since the beginning of 2022 we’ve been in bear market territory. The S&P 500 index is down nearly 21%, the tech-heavy NASDAQ Composite Index has fallen by 30%, and the Dow Jones Industrial Average is down roughly 15%.1,2

As the market continues to dip, it’s only natural to look for the root causes. Historically, there have been many different issues that have caused bear markets. It can happen when the economy slows, or when there’s a rapid rise in stock or other asset prices followed by a steep decline. They can also be caused by global crises, including wars and pandemics. Even well-intentioned economic intervention by the government can be a contributing factor.3

While rising interest rates and inflation are the main culprits in our current situation, the numbers have been further impacted by lingering ripples from the COVID-19 pandemic, clogged global supply chains, and Russia’s ongoing invasion of the Ukraine.2

Bear markets are typically comprised of four different phases.

1. High prices and high investor sentiment initially give way to investors dropping out of the markets to take in profits at the end of the phase.

2. The value of stocks declines rapidly, company profits start to decrease, investors trade less, and positive economic indicators may begin to head in the opposite direction. As investors begin to fear additional decline, they may sell their stocks at a loss.

3. Financial speculators begin investing in hopes of profiting from lower prices, which increases trading activity, and drives some prices higher.

4. The value of stocks continues to decrease, albeit more slowly. The lower prices and any positive turnaround in economic or global events encourage more investment, and bear markets begin shifting toward bull markets.3

As with most market trends, bear markets are part of the cycle. Since World War II, there have been 14 bear markets.1 They generally don’t last as long as bull markets, with the average length being 1,742 days for a bull, or almost five years, as opposed to an average of 363 days for a bear, or just under a year. The percentage of loss versus gain is also worth noting, with average bear market decreases of 33% and average bull market increases of 159%.

What should investors do in a bear market?

This is the multimillion-dollar question. Bear markets test the mettle of all investors. But as history has shown, the market will recover soon enough. Even so, you should resist the temptation to sell your investments when the markets plunge. To help you avoid fiddling with your investments during a bear market, you can enlist the services of a robo-advisor or a financial professional to manage your investments for you. This is a smart move in both good times and bad.4 Knowing the goal is to stay the course, especially if you have a long investment horizon, here are four tips to help you do just that.

Embrace dollar cost averaging

Keeping your courage up in the face of a bear market means having the fortitude to keep investing. This will allow you to buy low, the hallmark of any good transaction. Employing dollar cost averaging, the system of investing the same amount of money at a set cadence, can help even out your purchase price over time. This can help prevent you from sinking all your money into a stock at its peak while still giving you the freedom to leverage dips in the market.

Even though a bear market can be scary, the numbers above prove that it’s only temporary. Knowing the market will inevitably bounce back, you can focus on potential gains and take the opportunity to buy stocks when they’re lower.4

Diversify your portfolio

According to traditional wisdom, it’s a bad idea to put all of one’s eggs in one basket. And it’s an especially bad idea when it comes to your portfolio. Owning different kinds of assets can help to protect you during a downturn.

As we mentioned earlier, there’s typically a correlation between bear markets and recessions. Investors’ actions, in turn, typically seek assets that deliver a steadier return. You too can follow this strategy by adding the following types of assets to your portfolio:

Dividend-paying stocks. Dividends can go up even when stock prices don’t. That’s why investors tend to seek out companies that dole out above average dividends during bear markets.

Bonds. Because bond prices tend to share an inverse relation with stock prices, they’re often a desirable investment option during volatile market times. Bonds have always been seen as an essential part of a diversified portfolio, but they seem to be even more attractive during events like a bear market.4

Cash can also play a role in a diversified portfolio. It might not return much, but it does offer liquidity and purchasing speed compared to other items in your portfolio.5

Invest in sectors that resist market slowdowns

By now, you’re probably looking for any port in the storm for your portfolio. You can find a couple in sectors that have historically performed better than average during dips in the market: utilities and consumer staples. Things like food, beverages, household goods, and hygiene products usually fare better than most in bear markets.4

Exchange-traded funds (ETFs) are a great way to help you invest in specific sectors like consumer staples. Because they track a market benchmark and each fund holds shares in many companies, an ETF offers more diversification and more stability during down markets.4

Spend cash

This might go against your instincts, but selling your investments in a bear market is a sure way to lock in losses. Instead, use a portion of the cash in your diversified portfolio to take advantage of bear market opportunities and lower stock prices. And if your portfolio consists mainly of growth stocks, this is the perfect time to diversify. Because for the most part, lower-risk value stocks tend to fare better in bear markets, and can provide comparable long-term returns.5

While these tips can help you navigate the inherent ups and downs of the current bear market, it never hurts to talk to a financial professional who can learn more about your individual goals and help you keep your portfolio where you want it to be.

Things to consider

  • Diversify your portfolio and seek out stabilizing sectors like consumer staples that perform well during market downturns.
  • Rather than selling investments, you should always spend cash first.
  • Seeking the advice of a financial professional is always a wise move, in good times and bad.


1Stocks Have Officially Entered Bear Market Territory—Here’s What That Means and What You Should Do,” CNBC.com, June 2022

2 It’s Been a Vicious 6 Months For Stocks. Here’s What the Grim Markets Are Signaling,” NPR.org, June 2022
3 What Is a Bear Market?” Investopedia.com, June 2022
4What Is a Bear Market and How Should I Invest in One?” Nerdwallet.com, June 2022
54 Ways to Survive and Prosper in a Bear Market,” Investopedia.com, June 2022


Transamerica Resources, Inc. is an Aegon company and is affiliated with various companies which include, but are not limited to, insurance companies and broker dealers. Transamerica Resources, Inc. does not offer insurance products or securities. The information provided is for educational purposes only and should not be construed as insurance, securities, ERISA, tax, investment, legal, medical or financial advice or guidance. Please consult your personal independent professionals for answers to your specific questions.