How does an investor "reason" with a bear market?
- Remember that market declines are normal events.
Declines in the market do not last forever. The stock market lost 22.5% of its value in October of 1987. One year later it was back up 16.5% and up another 31.7% in 1989.
- Diversification tends to minimize your losses.
While there is no such thing as a risk free investment, you can minimize risk by investing across several asset classes. Do not beat yourself up by comparing a fund's loss with what you could have made in money markets or other investments. Congratulate yourself on how your investment discipline has cushioned your losses.
- Market declines are a chance to snap up bargains.
Buying into the market on a regular basis is known as "dollar cost averaging." With this kind of incremental investment approach, you will always be buying assets at the current price. For example, if the price of your mutual fund declines, you will actually be picking up the shares at a lower price and getting more shares as a result. Market downturns are more friendly to the dollar cost averaging investor than to the lump sum investor.
- Your goal is long term growth.
Remember why you are investing. The real issue is not how much money you have in this account now; it is how much you will have years from now.
