If we seem to talk about the importance of preparing for a bear market a lot, it isn’t your imagination. But that doesn’t mean we believe a bear market is imminent. It’s just that, after such a long upward climb, we feel the need to remind you that the market doesn’t always go up. 

When the market turns, as it eventually will, it’ll help to have been prepared. Here are three factors that can help.

1. Know some market history

I’m blessed to have a friend who owns property near Telluride, Colo., and I’m especially blessed that he often invites his friends to visit. The first time I flew there, I was unnerved by how bumpy the ride got as we crossed the Rockies. But then I learned that “mountain waves” are common. It’s just what happens when air flows over the peaks. I still don’t like turbulence, but learning to expect it has made it more tolerable. And the great memories that have been built during each visit have made the scary parts of the journey well worthwhile.

Similarly, all stock market investors should expect some turbulence. It’s written throughout the pages of market history. However, a closer examination of that history can help ease your fears. For example, take a look at the following chart. 

This isn't to suggest that bear market losses are easy to absorb, or that history is a guarantee of what will happen in the future. Still, I think you’ll agree that it’s helpful to know bear markets have been much shorter than bull markets and they’ve subtracted far less value from the market than bull markets have added.

2. A strategy you trust

One of the biggest and most common mistakes investors make is focusing too quickly on what to invest in. That mindset has a way of drawing your attention to headlines about this year’s best performing mutual funds. Or it makes you receptive when a co-worker starts talking about some can’t-miss investment.

Reacting to investment headlines or hot tips can be a danger to your portfolio and your peace of mind. A better approach is to focus on finding the right investment strategy. A trustworthy investment strategy is one that:

  • Is driven by an objective investment selection process. Never invest based on anyone’s predictions about the future. Instead, use a strategy that’s guided by clear, unbiased, mechanical rules that tell you what to invest in and when to make a change.
  • Is easy to understand. That means you’re clear about how it’s designed and what it’s designed to do.
  • Has a successful track record. That doesn’t mean year-after-year of double-digit returns. No strategy can deliver that. But over a reasonable time frame, it should have a demonstrated track record of delivering the sort of returns you need to achieve your goals.
  • Is emotionally acceptable to you. That means two things. First, you understand and are comfortable with the amount of risk and volatility that comes with it. Do you understand how your strategy is designed to perform in bull and bear markets? And second, you’re comfortable doing whatever is required of you in order to execute the strategy.

Right now would be a good time to make sure your investment strategy checks all of those boxes. If it does, that’s a strategy you should be able to stay with in good times and bad. 

3. Faith

Hopefully, the process of putting your portfolio together was bathed in prayer and your role as steward over that portfolio is something you continue to pray about. When times are good, we would be wise to pray against greed and self-reliance. When times are bad, we would do well to remember God’s invitation to cast our cares on Him (1 Peter 5:7).

Do you need nerves of steel to be a successful investor? I don’t think so. Not if you know some market history, have a trustworthy investment strategy, and have faith.

As you think about your journey as an investor, how have those three elements helped you stay out of your own way during bear markets? What else have you found helpful?