ITS ALL ABOUT THE BEAR

The fear of losing money is the biggest factor when it comes to investing decisions.  The pain of losing money is greater than the happiness most people get from making money.

There are very few riverboat gamblers – people who are driven by the thrill of making big money and who are comfortable with the risk of losing it all.

Imaging how easy investing would be if there were no ugly bear markets.  None of us would have to waste our time and energy worrying about the next big crash. 

But bear markets will always exist if humans are driving the financial markets.  We overreact to both good and bad news and that is reflected in the wild swings of the stock market. 

The fear of the Bear market forces people into weak investments like bonds.  Bonds generate measly returns and they can also lose money in the short term.

Investing strategies are totally driven by one’s feelings about severe bear markets. Investors separate into three different categories – conservative, aggressive or moderate.  Hear is the breakdown of where people fall.

Investor Categories

	% of Population	% of Retirees
Conservative	30%	35%
Moderate	50%	55%
Aggressive	20%	10%

Conservative investors can’t handle any losses, so they end up investing in things like CDs.  Aggressive investors are willing to tolerate bear markets and waiting for the inevitable rebound.  Aggressive investors put almost all their money in stocks. Like most things in life, most people fall somewhere in the middle.  Where do you fall on the investing spectrum?

But since memories are short, people don’t stay totally locked in with their investment strategy.  Good times make people complacent and bad times make people hyper-vigilant.

Younger investors did not experience the losses in the Great Financial Crisis of 2008 while older investors like me painfully remember watching the stock market drop by more than 50% in a short period of time.

Your awareness of severe bear markets, your strategy to deal with bear markets, and how you react to bear markets is everything in investing.  This affects how you invest but also, more importantly, your investing results.

We all feel like financial geniuses right now.  The last 3 years (20% per year) have been tremendous for stock market investors.  Again, investing is easy in bull markets.  It is easy to get complacent at times like this. 

There will be another severe bear market.  We are overdue for one.  Nobody knows when and nobody knows the cause, but it will happen. 

Let me show you what it will look like for your investments when it happens.  Most of you (moderate investors) will experience something like the blue line in the graph below.  A smaller percentage (aggressive investors) will experience something like the red line below.

Each investor (moderate and aggressive) enters the bear market with $1 million in their retirement savings account.  This is a simulation of what will happen in a severe bear market (market decline of 45%).  The graph tracks the value of each $1 million portfolio over time after the onset of the bear market.

Most moderate investors are not fully aware of what will happen to their life savings in a severe bear market.  They think they are more protected than they really are.  Their advisor convinced them to own bonds because it would insulate their portfolio against losses.  But the moderate investor will see their life savings drop by over $300,000 and will have to wait 3.5 years for their account to get back to even. 

The aggressive investor is aware of the risk, and they don’t need the money.  They are okay with waiting 4.5 years for their account to recover. 

A BETTER OPTION

My Growth & Safety system is “All About the Bear”.  It is designed to avoid the financial and emotional pain of severe bear markets in stocks. 

When the risk of loss elevates, the system flees to safety. Because the stock market is irrational in the short term, it isn’t possible to do this perfectly.  The Growth & Safety system does experience some losses in bear markets, but the losses are much less severe. 

In this graph, I have added how my Growth & Safety system should perform in an ugly bear market. 

You can see that the Growth & Safety strategy does not lose as much money at the lowest point – only -12% at the bottom vs. -45% for the aggressive investor and -30% for the moderate investor. 

The Growth & Safety investor recovers all losses within 1.5 years compared to the aggressive investor at 4.5 years and the moderate investor at 3.5 years. 

Investment Strategy Comparison

Strategy Return % Loss % Recovery Time

Conservative 3.0% 0% 0 years

Moderate 6.5% -25% 3.5 years

Aggressive 9.0% -36% 4.5 years

Growth & Safety 12.0% -12% 1.5 years

The only investor that makes out better in bear markets is the conservative investor who doesn’t lose any money.  But the conservative investor will only make 3% per year in strong growth markets (bull markets).  That has been the traditional tradeoff – safety but at a cost of low growth.

You don’t have to sacrifice Safety for Growth.

My Growth & Safety system provides a high level of safety with losses of only 12% in severe markets, but it also provides high growth during bull markets. 

We try to keep pace with the stock market in good times – achieving close to the 17% gains of the S&P 500 in bull markets. 

That is how we beat the S&P 500 over time – staying close to its performance in growth cycles and losing less in bear markets. It is just math.

YOU DON’T NEED AN ADVISOR - YOU NEED A COACH

I have simplified the results for the aggressive and moderate investors.  There are more varieties of investing strategies than just the two that I have included.  Your situation might be different. 

I am offering a free investing coaching session where I will stress test your investments to show you how they will perform in the next bear market.  Your portfolio was probably not built to withstand an ugly bear market.  The time to understand this is now, not after the bear market begins. 

In this coaching session, I will also answer all your investing questions and help you build a better financial plan for retirement. 

Paying an advisor $10,000 per year to build you an aggressive or a moderate investing strategy doesn’t make financial sense.  You can build your own portfolio and get similar or better results without paying the 1% fee. 

Most people need coaching from an expert to do this.  Investment coaching is also better than reading ten books on investing and getting even more confused.  Reading books and attempting to do this on your take a long time.  You can read the books quickly, but you only learn the key lessons through experience. 

Take advantage of this free coaching offer now by booking an appointment on my calendar via the link below. 

Book Appointment

Stay Disciplined My Friends,

Phil

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Disclaimers The Beyond Buy & Hold newsletter is published and provided for informational and entertainment purposes only. We are not advising, and will not advise you personally, concerning the nature, potential, value, or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. Beyond Buy & Hold recommends you consult a licensed or registered professional before making any investment decision.

Investing in the financial products discussed in the Newsletter involves risk. Trading in such securities can result in immediate and substantial losses of the capital invested. Past performance is not necessarily indicative of future results. Actual results will vary widely given a variety of factors such as experience, skill, risk mitigation practices, and market dynamics.