Personal Finance

Here's how you should prepare for that next bear market

Key Points
  • A bear market is definitely coming, but a bull market will follow and any attempt to time the events is a fool's errand, says certified financial planner Tim Maurer. 
  • Barry Glassman, CFP, Glassman cautions that "any time stocks go up 50 percent to 60 percent in a year means they can absolutely come down by 15 percent to 20 percent."
Handling market volatility
Handling market volatility

There's nothing more unnerving for investors than watching the market go up and down day after day. All the market gyrations have left many investors wondering if a bear market is coming soon.

The good news is that many financial pundits have weighed in and say economic and market history shows the bear market (and possible recession) are likely to be much milder than most investors fear. The bad news is that eventually a recession/bear market will happen, which is why good risk management is essential.

That doesn't mean investors should try to time a bear market, experts say. Studies have made it clear that it's nearly impossible. In fact, attempting to sit out a bear market could sink any long-term financial goals.

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"There is absolutely a bear market coming," said Tim Maurer, a certified financial planner and director of advisor development at Buckingham Strategic Wealth. "But there's also a bull market coming and the truth of the matter is that, statistically speaking, the people who try to pinpoint precisely when those will happen will end up losing more money than making money.

"I do advise not making wholesale changes in your investment strategy just based on the fact that eventually we will indeed experience a bona fide bear market," he added.

"A lot of people are concerned that we might see some sort of bear market or correction as we head into 2019," said Barry Glassman, CFP and founder and president of Glassman Wealth Services. "The question is will the next downturn be more like the 2008 financial crisis or will it be more like the tech bubble bursting in 2000 to 2002."

Any time stocks go up 50 percent to 60 percent in a year means they can absolutely come down by 15 percent to 20 percent.
Barry Glassman
founder and president, Glassman Wealth Services

Maurer urges investors to take stock of what they already have in terms of investments.

"How are you currently set up in your investment portfolio?" he said. "Do you have a strategy? Because the truth is that if you don't, this may indeed be a good sign that it's time to do something about that."

If you do have a good investment strategy in place then you need to stick with it, Maurer said.

"It doesn't mean that we do absolutely nothing if the bear market is coming down on us and really beating up our portfolio," he said. "There are steps that we can take in those moments to make the best of the next bull market. But, for the most part it is important that once you develop a strategy you stick with it."

Sean Brophy / EyeEm | Getty Images

Glassman cautioned investors that "any time stocks go up 50 percent to 60 percent in a year means they can absolutely come down by 15 percent to 20 percent."

So, of course, investors are nervous that we may be headed for some kind of market downturn, he said.

"The question is, will we see a complete market downturn or will we see some sort of rotation," Glassman said. "And what we're expecting and hoping for is that the deeper value dividend paying stocks that really have been lackluster performers over the past 18 months or so will hold up really well or even gain during this next downturn."