And with that close the S&P 500 falling into bear market territory, officially now down 20%.
Contrary to popular belief, bull markets do not last forever.
Now we have seen in the past, when markets do reach that 20% decline, what usually follows is a total 30% decline.
And it can take up to two years on average for markets to actually get back to their original values and start moving higher.
That's the bad news.
The good news is that bear markets also do come to a close and there are things that you can do to protect yourselves during a bear market decline.
And in fact even make some money while it's happening. Now the most important thing,
lesson number one: is do not panic.
That's the worst thing that you can do is chase the market lower. You're going to lock in losses and you're going to regret it later.
What you can do is you can strategically take some risk off the table and raise some cash.
Cash, for the first time in a decade, gives you some return. A three-month Treasury note actually has yield now.
So does the money market. So does even a plain vanilla savings account. So what's the advantage of raising cash during this time?
So you have opportunities later. You can buy things that are on sale during a bear market and make some great investments for value.
You want to talk about value? Let's talk about Warren Buffett. Back in 2009, when everybody else was panicking,
Buffett made a big investment in the Burlington Northern Santa Fe Railroad.
And I just basically believe this country will prosper and they'll have more people moving more goods 10 and 20
and 30 years from now. And the rail should benefit but it's a bet on the country basically. He believed in America
back then. And he also believed that the bear market was going to end and when it did end there was going to
be a bounce back and an opportunity to make money.
That bet played out into one of the best parts of Warren Buffett's career. He has made a ton of money on that
over the past decade. Buffett's philosophy can be summed up in just looking for value during bad times
and trusting that things are going to turn back around again. Remember what Buffett says:
"Be greedy when others are fearful and fearful when others are greedy."
Think safe havens during these times.
Short-term bonds, commodities like gold and silver. Those are all traditional places where investors will put
their money for safety during times of turmoil in the financial markets.
If you are going to dabble in stocks keep a few things in mind. High dividend stocks are an excellent place to put
money. Why? Because you're getting paid to hold them. Also preferred shares along the same lines.
And if something does happen with the company you get paid. In a bear market people are tightening their
belts, so think about where they're going. They're going to discount stores. They're going to Walmart.
They're going to Dollar General. Back during the crisis while the rest of the market was falling apart,
Walmart held its value. Why?That's where people were shopping during that downtime and investors were
rewarded for it. Real estate also can be a solid investment during these times. Yes prices can go down,
but they've shown to be less volatile over time. Also it's nice to know that even if it's not appreciated in value,
you can actually live there.
Remember, it's not just the U.S. stock market it's a global stock market and over the past couple of years global
stocks have gotten beaten up fairly badly. So that's going to present you with an opportunity to find bargains
there as well. No one knows how long a bear market can last or how strong it can get, but there are ways for you
as an investor to make your way through it.