How to react to a bear market as a Foolish investor

With the Nasdaq and S&P 500 officially in ‘bear market’ territory, and commentators believing UK markets might follow suit, what’s a Fool to do?

Tabletop model of a bear sat on desk in front of monitors showing stock charts

Image source: Getty Images

“Bear markets… talk to me. Not enjoying the declines so far”

I received this WhatsApp message from a friend earlier in the week. And I know that they won’t be the only person with concerns.

How we respond to a depressed market really depends on the type of investor we are. I’ll circle back to that in a bit, but as hopefully you (dear reader) know, here at The Motley Fool we are very much focused on the long term.

Let me continue first with this fact. Every significant decline in UK and US stock markets has eventually been cleared away by a bull market.

It’s that word “eventually” that is important here.

If you’re patient, able to buy shares with money that you won’t need in the next three to five years, and happy to ride any further volatility in the short to medium term (for example, a couple of years), then I believe that bear markets are FANTASTIC opportunities for long-term investors!

They are, however, awful for short-term traders. And keep in mind that markets react with more volatility to traders — who are mostly selling right now — than they do to buy-and-hold investors.

Why I’m bullish

Personally, I don’t believe a bear market is the time to buy speculative shares in, say, exploratory oil drillers. But I am convinced that they do allow investors to buy into reliable, shareholder-focused companies at undervalued prices.

“Interesting, so ride it out”

“Buy a bit maybe?”

My response was to say that it all comes down to your investing style. If it were me (which it is), I’d hold and look to buy more, depending on the company.

And my message to all less-experienced investors is that I wouldn’t get too dispirited by a bear market. If it was as easy as putting your money in and getting 5%+ returns in interest/dividends AND capital growth, then everyone would do it.

But we believe the simplest way — and most Foolish, with a capital F — is to play the long game and try not to check your portfolio regularly.

Oh, and to buy shares when they’re cheap… like now!

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Here at The Motley Fool, we believe that considering a diverse range of insights makes us better investors.

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