How-To: Survive and Thrive in a Bear Market

For many professional women, some of life’s most frustrating moments or situations involve things that are out of our control. We’re often used to being the successful COO of our households and the chief strategist of our task lists at work. So when a traffic jam makes you late for a meeting or the airlines lose your luggage, the situational powerlessness can be infuriating.
 
Nowhere is this sort of frustrating lack of control more evident than in the midst of a struggling stock market. Watching your wisely invested earnings diminish in your accounts can be aggravating and scary. And when even the most successful investment strategies are in the red, the situation may leave you feeling defenseless. Here is a quick guide to making the most of a less-than-ideal investment environment.
 
1.      Focus on the Long-Term
This first essential to-do isn’t necessarily an action item, but more of what not to do: Don’t Panic. Don’t let the negative media or short-term negative returns sway your investment philosophies. When investors see their account values dropping, they often begin to question their equity exposure and consider selling out of stock. But obviously selling low and buying high has never yielded favorable returns. Assuming you and your advisors have implemented a strategic stock / bond allocation customized for you, stay put in a bear market and try to minimize emotional investing (or disinvesting!). If you do not have a financial advisor, now may be the time to consider seeking professional advice. An advisor should not only help you implement appropriate investment strategies and plan your financial future, they should also give you peace of mind that is invaluable - particularly in difficult market environments.
 
2.      Continue Saving
I have a colleague that compares saving in a down market to buying shoes when they’re on sale. I have to admit that I’ve given him grief for trying too hard to relate to a woman’s love of shoes, but the concept is right on - when the markets are down, everything is on sale. Sell high, buy low is in fact the classic recipe for investment success, so focus on saving as much as you can afford. This will require that you also take care of #3…
 
3.      Control Spending 
Another obvious but invaluable piece of advice: save more, spend less. Different people create spending plans in different ways. Some find that creating a strict budget to help plan and track expenses is most effective. Others prefer calculating what needs to be saved, setting that amount aside and then having more freedom in spending the surplus funds. A spending plan, in general, will help guide your lifestyle in order to optimize savings and ensure that you don’t have to dip into your nest egg too much or too early.
 
4.      Reduce Taxes by Looking for Losses
A silver lining of negative growth can often exist since losses in non-retirement accounts can be “harvested” and used later to negate taxable gains. Harvesting losses is the sale of a fund or stock at a loss and then using those proceeds to buy a similar replacement security. Thus the portfolio should essentially keep the same basic structure and comparable performance while you realize losses that can decrease your future tax liability. After 31 days (avoiding the IRS’ wash sale rule), the investor can then sell the replacement security and return to the original fund or stock.
 
5.      Empower Yourself in Other Areas of Life
This final action item will be different for each of us. What concrete thing can you do in your life to set yourself up for success or to give yourself peace of mind? You can’t control market returns, so focus on those things that you can control. You can control your estate planning to ensure a smooth and tax efficient transfer of wealth if something should happen to you. You can control your debt management and ensure that your debt financing is maximally tax deductible at a competitive rate. Or even think in broader terms: you can control what you do over your lunch hour - go for a walk, eat healthier, and feel better.
 
All this being said, keep in mind that market conditions are looking less bearish by the day. The S&P 500 Index has rebounded from a dismal low of -12.90% YTD on 3/10/08, to a less depressing -4.67% YTD as of close of day, 4/29/08. Nevertheless, a long-term perspective coupled with cognizant spending and disciplined saving are valuable assets in any market conditions. Take charge of the things that you can control in a struggling economy and you will be ahead of the game when the bull market returns!