As many markets enter bear market territory around the globe, investors are inevitably getting skittish. Bear markets are a regular part of the financial markets, but that doesn’t make them easy to handle. Here are some keys to handling a bear market:
1. Don’t lose your perspective. In the last 45 years a globally allocated 60/40 stock/bond portfolio has never had a negative rolling 5-year return. Of course, it’s not easy to maintain a five year time horizon, but if you have less than a five-year time horizon you probably shouldn’t own stocks and bonds in the first place. Resisting recency bias is the greatest struggle for most investors. And unfortunately, most people never overcome it. I’ve witnessed this repeatedly among clients. The financial markets are a revolving door of investor after investor dying one funeral at a time thanks to excessive short-termism.
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