Billionaire investor Warren Buffett, founder of Berkshire Hathaway, provided sage advice for sustaining wealth and sanity during a bear market in his 2016 letter to shareholders by conveying to “stay in the market and buy at a bargain”. Furthermore, Buffett wrote:

“During such scary periods, you should never forget two things: First, widespread fear is your friend as an investor, because it serves up bargain purchases. Second, personal fear is your enemy.” Warren Buffett

In other words, investors with a long-term perspective, a declining market can be a buying opportunity. Consider buying ownership shares of businesses with superior balance sheets and robust free cash flow when the market has them on sale.

Bear Markets

A bear market is Wall Street’s term for an index like the S&P 500, the Dow Jones industrials, or even an individual stock, that has fallen 20 percent or more from a from the peak. On average, bear markets last 14 months in the period since World War II. The S&P 500 index has fallen an average of 33 percent during bear markets in that time. The biggest decline since 1945 occurred in the 2007-2009 bear market.

One thing every investor needs to know about bear markets is that they always seem like the world is ending when you are in the middle of one. Time and time again, when recessions and bear markets occurred, the same thing always happened, they end.

Additionally, the U.S. has gone through many challenges in the past such as the September 11, 2001 (9/11) attack, and we will get through this current pandemic virus challenge as well. By keeping a positive outlook and focusing on the things you can control, we will get through this together.

Stocks Help Build Wealth

When you are looking to build wealth over your lifetime, the more time you have to invest in the stock market, the better your chances of building life-changing wealth.

If you set aside money every month and invested those funds into a diversified portfolio over your working career, you would have benefited from stellar returns on your investments in the stock markets during the last 10, 20, 30, 40 and 50 years.

Try investing a fixed dollar amount on a regular basis into equities. This practice will ensure that you are purchasing when markets are going down as well as going up. This practice is known as dollar cost averaging. Dollar cost averaging will ensure that you realize a better average cost over time.

This too shall pass

This period of uncertainty and challenge will soon pass and life will eventually return to normal. Businesses, places of worship and schools will begin to reopen, and governmental restrictions will be lifted. In the meantime, Americans must remain positive during periods of fear and uncertainty, help others where they can and display fortitude during this unusual period. We all must rely on one another, and we will get through this together.

References:

1. https://www.berkshirehathaway.com/2016ar/2016ar.pdf, pg 6
2. https://www.marketwatch.com/story/goldman-sachs-analyzed-bear-markets-back-to-1835-and-heres-the-bad-news-and-the-good-about-the-current-slump-2020-03-11
3. https://www.kiplinger.com/article/retirement/T047-C032-S014-financial-keys-to-help-weather-coronavirus-crisis.html