Could You Stay Calm Through a Long Bear Market?

by Paul Ruedi

The stock market has been making new highs lately and you’d probably assume I’d be thrilled about that as a financial advisor. But I am starting to worry about the impact several years of very little adversity has had on investors. I can’t help but think investors may be getting lulled into a sense of complacency. 

Investors haven’t really been tested since 2022 when the S&P 500 slipped into bear market territory and remained there for several months. The decline itself dragged on almost an entire year from peak to trough, and the market didn’t fully recover until early 2024. For stock investors, it was a full two years of account balances below their previous high-water marks. People who retired in 2023 or later simply have not been tested like this.

Though investors technically got a taste of a bear market during the tariff-induced decline last year, the market recovered extremely quickly. Too quickly for investors to feel any real pain. Though a quick decline can be painful while it is occurring, in my experience it is much harder on investors when that pain drags on for months or years and they have to patiently wait for a recovery. 

So today I want to ask you to mentally prepare yourself for a material decline in the stock portion of your portfolio with one of my “lifeboat drills.” Not because I think one is coming, because nobody can predict that. But we have to recognize that eventually, a bear market will happen. It might not recover quickly. I don’t want anyone to be surprised by that.

So imagine the stock portion of your portfolio has declined by 30%. How do you feel? Now I want you to take this lifeboat drill a step further and imagine the stock portfolio is still down 20% or 30% a year later. How do you feel then? What about two years later?

 I suggest this scenario not to scare you, but to prepare you. If you mentally consider these situations in advance, they will be much easier to get through if they occur. It also allows you to rehearse the response you must have: this too shall pass. Nobody can predict when things will get better, but they eventually will. I will stick with my investments and wait for the inevitable recovery.

You must be ready to wait patiently while your account balance is down in order to receive the staggering returns stocks provide over the long term. If you can’t do that yourself, you may want to consider working with a financial advisor.

Paul Ruedi is the CEO of Ruedi Wealth Management in Champaign, Illinois.