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How to Prepare for a Bear Market

How to Prepare for a Bear Market

October 17, 2019

Preparing for a Bear Market

I have a son that just turned eleven. He is a ruffian and loves tackle football. During the first few seasons, he was about average size. But this year, he weighs much less than many of his teammates.

Obviously, this has made the game more demanding on him. There are certain factors in sports that are uncontrollable, and the disparity in his teammates' size is one of those uncontrollables.

Recently I noticed that even during wind sprints at the end of practice, he was coming in near last place every time. This is typically an area of strength for him—but I believe his slow running was a psychological effect of losing some of his confidence due to his size.

So, I made him a deal.

I told him that if he could start running in the top half of the pack for one week, I'd take him to Dunkin' Donuts. I also told him that if he started placing in the top 10% of the pack for one week, I'd take him to Cracker Barrel.

The result?

In one week of practice, he went from an average of 12th or 13th to be 1st, 2nd, or 3rd every time.

While he cannot control the fact that his peers outweigh him, he can control his effort and his God-given ability to run like the wind. Control the controllable. His confidence is much higher now, and he performs better in all aspects of his game.

Control the Controllable for Bear Markets

The same methodology in sports works in the world of investing. For example, what can't you control?

  • You can't control the economy
  • You can't control the stock market
  • You can't control political factors that influence both the economy and the stock market

But you can control the following:

  • You can control the expenses of your portfolio through investment selection
  • You can control your asset allocation
  • You can control how you react or do not react during a market downturn

Controlling your behavior, your expenses, and your investment allocations are just a few things that you can control if you want to become a successful investor.

Learn to control what you can now before a bear market begins and causes you unneeded stress.

Prepare in Advance

As we have written in previous blog posts such as Three Ways to Prepare for a Stock Market Crash, preparation matters. It is inevitable that bear markets will show their teeth sometime in the future--we just don't know when.

But we do believe that the time to prepare is now. The proper asset allocation can be very effective when it comes to a stock market correction. In the blog post Your 401K and the Efficacy of Asset Allocation, we walk you through three specific steps that you can take to mitigate a precipitous crash. The beauty of this type of asset allocation is that it will help you remain predominantly offensive while keeping losses to a minimum.

With a major election brewing, an inverted yield curve, and world trade tensions rising, take time to prepare now—while you can still think objectively.

Be Open Minded to Investment Advancements

The investment industry is constantly evolving. Even as a professional, I have difficulty staying on the cutting edge of new investment ideas.

As human beings, we tend to lean too heavily on investment concepts from the past. Many of which may be outdated.

In particular, I have recently read some provocative research that explores why fixed-indexed annuities may be a better alternative to bonds in your portfolio*. Until recently, I would never have thought that investing in a fixed-indexed annuity could be quite so competitive. But the design of this particular investment has changed dramatically over the last few years, and traditional bond investing has proven difficult with historically low-interest rates.

While preparing for a bear market, we must continue to keep abreast of the latest in investment thinking. We must continue to desire an optimal return and to obtain it through research, patience, knowledge, and innovation.


*Fixed Indexed Annuities: Consider the Alternative by Roger G. Ibbotson, PhD.

About the Author

Jeff Headrick is an independent financial planner and wealth manager with Inspire Financial Planning. When Jeff was still in his teens, his father died unexpectedly. While his father was a hard worker and a good provider, he did not have the best financial plan in place when he died.

This left his family at a tough financial crossroad. This personal experience, coupled with being inspired by Sir John Templeton, Warren Buffett, Dave Ramsey, and the laws of compound interest, prompted Jeff to enter the financial services industry in 1999. He has been helping people with their financial planning ever since.

Jeff lives in Wilmington, NC, with his wife and two children. He spends most of his spare time just across the Intracoastal Waterway in Wrightsville Beach, enjoying the beauty of the NC Coast.

Charts and graphs contained herein should not serve as the sole determining factor for making investment decisions. All hypothetical scenarios are for illustrative purposes only. Investment Advisory Services offered through AlphaStar Capital Management, LLC a SEC Registered Investment Adviser. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the adviser has attained a particular level of skill or ability. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

Diversification does not guarantee profit nor is it guaranteed to protect assets. International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Past performance does not guarantee future results.

You cannot invest directly in an index. Consult your financial professional before making any investment decision. Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.

These are the views of Inspire Financial Planning and not necessarily those of AlphaStar Capital Management, LLC, and should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.