Should I sell all my stocks in this bear market? (2024)

Should I sell all my stocks in this bear market?

Should You Sell in a Bear Market? Many investors ask if they should sell stocks in a bear market. A smart investor will never sell during a bear market. Panic selling can ruin your portfolio and take you away from your financial goals.

While investors may be more willing to buy during a bullish market, a bearish market will likely lead them to sell and move their money into low-risk investments.

When things are looking bleak, consider holding on to your investments. Selling during market lows can be one of the worst things you can do for your portfolio — it locks in losses. When the market evens out down the road, rebalancing may be in order.

While it's tempting to dump stocks when the market is down, experts say that's usually a bad move for a typical retirement saver. Stocks usually deliver better returns over long timespans than other types of assets, despite being vulnerable to downturns like the current one.

If you're retired, don't take withdrawals from your stock funds in a bear market unless you have no other choice. You won't have income to cover your losses. And if your stock fund is down 15 percent and you withdraw 4 percent, your account will be down 19 percent. Withdrawals in a bear market just make things worse.

Bear markets tend to be short-lived.

The average length of a bear market is 292 days, or about 9.7 months. That's significantly shorter than the average length of a bull market, which is 992 days or 2.7 years. Every 3.5 years: That's the long-term average frequency between bear markets.

Widely used during the global financial crisis of 2007–2008 and the Great Recession that followed, the phrase was also often used to describe companies which could avoid share issues or bankruptcy. Commercial establishments that accept only cash payments have become suspect in the modern age.

Investors might sell a stock if it's determined that other opportunities can earn a greater return. If an investor holds onto an underperforming stock or is lagging the overall market, it may be time to sell that stock and put the money to work in another investment.

Hold on to the shares you believe are “clearly” good and sell the losing shares, regardless of their past performance. The cost price is irrelevant when deciding what to do with a losing stock in your portfolio. If you wouldn't buy more of a losing stock, sell it. Don't put off until you break even.

How much cash should I have in a bear market?

While there is no one-size-fits-all number when it comes to how much cash investors should hold, financial advisors typically recommend having enough money to cover three to six months of expenses readily available.

Check on your emergency savings

Emergency savings are a lifeline even in bull markets. They're even more important when things get grizzly. Fidelity's recommendation is to save enough cash to cover at least 3 to 6 months' worth of essential expenses.

The most obvious mistake one can make when retiring into a bear market is to sell stocks when they are low. This can be tempting when the market is down and times look bleak, but it is important to remember that bear markets are temporary. The market will eventually recover.

A recovery is coming, but no one knows when.

The stock market rallied modestly in the first two and a half months of 2023, but that has not been enough to make up for an abysmal 2022 during which the S&P 500 index plunged by nearly 19%.

Highly successful stock pickers go through similar training: They must learn how to cut their losses short. This means selling a stock when it's down 7% or 8% from your purchase price. Sounds simple, but many investors have learned the hard way how difficult it is to master the most important rule in investing.

Short of a recession — a very real possibility — consensus estimates are for about 5% earnings growth (opens in new tab) for S&P 500 companies in 2023. That's certainly less than what it was in years past, but still respectable.

By investing a fixed amount of money at regular intervals regardless of market conditions, you're more likely to be able to purchase equities at more affordable prices, and potentially see the shares rise in value once the market rebounds.

The good news is that it is possible to make money during a bear market, and it's easier than you might think. The key is to invest in strong companies and hold those stocks for the long term --regardless of what the market is doing.

Investors can make gains in a bear market by short selling. This technique involves selling borrowed shares and buying them back at lower prices. It is an extremely risky trade and can cause heavy losses if it does not work out.

As of now, the longest bear market occurred between 2000 and 2002 and lasted 929 calendar days. Image source: Getty Images.

How long does it take to recover from a bear market?

That compares with an average recovery time of nearly five years for the harsher bears. Two years may seem like a long time to stare down red numbers in your portfolio, and five may seem like an eternity. But if you're invested for decades, a period of a few years is a blip.

The US bear market of 2007–2009 was a 17-month bear market that lasted from October 9, 2007 to March 9, 2009, during the financial crisis of 2007–2009. The S&P 500 lost approximately 50% of its value, but the duration of this bear market was just below average.

Timing is especially important when trading a bear market, which tends to be more volatile than a bull market. Entry and exit orders can be used to help. It is important to use stop-loss orders when trading a bear market. A stop-loss order is an order to sell an asset at a loss when it reaches a certain price.

Dividend-paying stocks are an easy way to make money in a bear market. They pay a steady income, regardless of whether the market is going up or down. So while the stock may not increase in value, investors can still rely on the dividend payments.

Short strategies: Short selling, put options or inverse exchange-traded funds (ETFs) are all ways to try and make money in the short term during a bear market.

This escalated fear can result in many assets being sold off way below where they should realistically be at. This is what drives the potential for the most millionaires to be made of the tail end of a recession or bear market.

As of now, the longest bear market occurred between 2000 and 2002 and lasted 929 calendar days. Image source: Getty Images.

The fifty percent principle predicts that when a stock or other security undergoes a price correction, the price will lose between 50% and 67% of its recent price gains before rebounding.

Why do people sell during a bear market?

You want to minimize taxes

People with large concentrated stock positions are often hesitant to liquidate their shares due to large impending capital gains taxes. A bear market presents an opportunity to exit stock positions at smaller gains, which leads to smaller tax bills.

Examples of cash equivalents are money market mutual funds, certificates of deposit, commercial paper and Treasury bills. Some millionaires keep their cash in Treasury bills. They keep rolling them over to reinvest them and liquidate them when they need the cash.

That's where rebalancing comes in. It's important to take time and realign your investments with your original plan, whether you still have decades to invest or are nearing retirement. It's particularly important in Bear markets and the prospect of a recession looming.