We are in a bear market – that means that the market is down over 20% since the start of 2022.
This can be attributed to many things: the Ukraine war, rising inflation, high energy prices etc.
With all this uncertainty, the question is: is this the time to be investing in the stock market?
The good news is the stock market is on sale – you get to purchase more with your money.
You only lose money if you pull it out now – keep it in until the stock market goes back up.
Try not to time the market, no one can – time in the market is better than timing the market.
Believe it or not, the market always goes up – the average bear market lasts only 289 days.
In this post, I talk about why it’s the time to invest, and how people lose money in the market.
I also talk about time in the market is better than timing, and why the market always goes up.
Finally, I talk about keeping calm and keep investing, and where to find out more information.
The Stock Market is on Sale
Most people view the stock market taking a decline as a bad thing – and they would be right.
After all, the whole point of market investing is for your money to go up over time, not down.
This is especially harmful if you’re in retirement and you use your investments as your income.
You suddenly have less money to withdraw from; not what you need right now in retirement.
However if you are still working and investing, a bear market is the best thing that can happen.
Each time you invest in an index fund, you are buying a certain amount of units of that fund.
When the market is up, the cost of the units are high, and vice versa when the market is down.
So when the market is down, it is the time to invest i.e. buy more units with the same money.
It is like fuelling when the cost of petrol is down: you get more for the same amount of money.
When the market goes back up, and it always does, your portfolio will be worth much more.
Why People Lose Money in a Bear Market
You may be looking at all your investments and thinking: I should probably pull out right now.
I don’t want to lose any more money. If I pull out now, I’ll only have lost a little bit of money.
However, let me be perfectly clear: pulling out in a bear market is the worst thing you can do.
The reality is you’ll only lose money if pull out right now; this will certainly lock in your losses.
What you should do, and it is not easy, is keep your money in until the market goes back up.
But how can I be so sure that the stock market will go back up? What if it keeps going down?
Because the market always goes back up, the average bull market lasts 289 days or 9 months.
So what am I supposed to do – just watch my investments go down in value and do nothing?
That’s exactly what you should do, and as discussed in the previous paragraph keep investing.
So not only would you not have lost money, but you will have made more money in the end.
Time in the Market vs Timing the Market
But shouldn’t I just wait until the market has reached its lowest point and then start investing?
Once it hits its lowest point, I can put money in and then ride the high for the next few years.
Great idea, wait until the market hits its lowest point to avoid watching your money go down.
However there’s just a problem: no one, and I mean no one, knows when that time will be.
It could start rising from tomorrow, or next month, or from next year – no one knows for sure.
That’s why the best thing you can do is keep investing, keep putting money in every month.
You could go to sleep one day, wake up, and find that the stock market has sky rocketed high.
Then you would have missed your opportunity – because you were waiting for the right time.
That’s why they say time in the market is better than trying to time the market – no one can.
By investing, you will reap the rewards by the staying the course and weathering the storm.
The Stock Market Always Goes Up
This is a big statement to make – how can I be so sure that the stock market always goes up?
Take a look at the above chart. As you can see in the past 100 years the market has gone up.
In any 5 – 10 year period yes it may be flat, but in any 15+ year period, it has always gone up.
This is not the first bear market, nor will it be the last; there have been many over the years.
But as you can see, we have gotten through them every time – no bear market lasts forever.
As you can also see, the stock market is like a rollercoaster – it is quite bumpy along the ride.
Stocks have always been and will continue to be volatile; the stock prices change day to day.
The beauty of the stock market is that it is self-cleansing – what the heck does that mean?
That means any company that goes bust is removed from the index and replaced by another.
This is why the market goes up: it consists of the world’s most biggest/resilient companies.
Keep Calm and Invest On
So as you can see, this bear market that we are in the year 2022, is actually to be expected.
Bear markets occur roughly every 5 years, except the last one was in 2020 during COVID-19.
However that one barely lasted a month as investors looked forward to an economic rebound.
Similarly the same thing will happen with this bear market: in a couple of months it will pass.
In the meantime, we must keep investing: buy more units of our index funds while it’s on sale.
So that when we eventually enter a bull market, our portfolio will be soaring into a new high.
To find out more on bear/bull markets, read the book: The Simple Path to Wealth by JL Collins.
He talks in detail about bear and bull markets and how it is the greatest wealth building tool.
Are you investing in this bear market? How is it going? Share your thoughts in the comments.
If you want to find out more on stock investing, please let me know in the comments below!
