Despite some setbacks, the market has grown enormously over the past two years. The S&P500 (SNPINDEX: ^GSPC) is up nearly 63% since its October 2022 low and shows no sign of slowing down.
That said, the market can’t continue to boom forever. While no one can say exactly when the next downturn will occur, there will certainly be a bear market eventually.
While that can be stressful for investors, now is a great time to prepare while the market is still moving. Everyone’s strategy will be different, but there are three simple steps I take now to ensure my investments are successful no matter what happens in the stock market.
1. I’m replenishing my emergency fund
Building an emergency fund may not seem like an investment strategy, but it can help protect your portfolio when stock prices fall.
One of the worst investing moves you can make is withdrawing your money after the market has already fallen. By selling your shares at prices lower than what you paid for them, you will end up absorbing those losses and potentially losing a lot of money.
However, emergencies will still arise even when the market is in a dire situation. Keeping at least three to six months’ worth of savings in an emergency fund can help you avoid taking money out of your investment account when you’re faced with unexpected expenses.
2. I continue to invest consistently
Whatever the market does, it can be tempting to try to invest at the right time to maximize profits. If a bear market is approaching, it may make sense to wait until prices drop before investing. While that may sound like a smart strategy, waiting too long to buy could cost you money.
No one knows how long this bull market can last. According to data from Bespoke Investment Group, the average bull market lasted just over 1,000 days between 1929 and 2023, or about two years and nine months. But it is not unheard of for market fluctuations to last much longer. For example, the bull market after the Great Recession lasted almost eleven years.
If you stop investing now because a bear market may be on the way, you could be missing out on serious income. The market could still have many months or even years of growth ahead of it, and if you continue to invest consistently, you can take full advantage of it.
3. I am looking for new purchasing opportunities
Bear markets can be intimidating, but they also offer incredible buying opportunities as the market is essentially on the verge of disappearing. So right now might be a smart time to make a list of stocks you can jump on if their prices fall during the next bear market.
This doesn’t necessarily mean you shouldn’t buy these stocks now. Again, consistent investing is the key to maximizing your long-term income. But bear markets can be a smart time to buy more shares than you normally would during a bull market, when prices are higher.
The benefit of looking for these buying opportunities now is that you can research stocks while your mind is clearer. It can be stressful deciding where to buy as prices fall, making it more tempting to buy a stock simply because it’s more affordable – even if it’s not a strong investment. If you already have a list of stocks that you have thoroughly researched, you can take advantage of the opportunity immediately.
The market can be unpredictable and it is unclear when the next bear market will arrive. But the better you prepare now, the better off you will be when it inevitably starts.
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Katie Brockman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
There will eventually be a bear market. 3 investment moves I am now making in preparation. was originally published by The Motley Fool
