{"id":12098,"date":"2025-03-21T01:43:47","date_gmt":"2025-03-21T01:43:47","guid":{"rendered":"https:\/\/finderica.com\/?p=12098"},"modified":"2025-03-21T01:43:47","modified_gmt":"2025-03-21T01:43:47","slug":"the-1-question-every-investor-should-be-asking","status":"publish","type":"post","link":"https:\/\/finderica.com\/?p=12098","title":{"rendered":"The #1 Question Every Investor Should Be Asking"},"content":{"rendered":"
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A friend who is a bit younger than me told me that his financial advisor recommended selling his stocks in favor of bond funds because of the coming bear market. He asked me what I thought.<\/p>\n

\u201cThat\u2019s the dumbest thing I\u2019ve ever heard, and you should fire them,\u201d I said emphatically.<\/p>\n

My friend was caught off-guard. \u201cWhy?\u201d he asked.<\/p>\n

\u201cHow do they know there\u2019s going to be a bear market?\u201d I retorted.<\/p>\n

I elaborated that even the smartest and most successful economists, bankers, investors, and traders in the world can\u2019t time the market. But this guy who cold calls people for a bank in Akron knows there\u2019s going to be a bear market?<\/p>\n

Then I asked my friend the most important question all investors should be asking themselves.<\/p>\n

\u201cHow would a bear market affect you?\u201d<\/em><\/p>\n

Since 1900, the U.S. stock market has returned an average of 9.7% per year. That includes corrections, run-of-the-mill bear markets, and market crashes like the Great Depression, the dot-com crash, and the global financial crisis.<\/p>\n

In order to capture that nearly double-digit annual gain, it\u2019s important to stay in the market.<\/p>\n

However, if you\u2019ll need the money soon, that\u2019s a different story.<\/p>\n

I always recommend that any money you\u2019ll need within three years not be invested in the market. That\u2019s not because I think there\u2019s a bear market coming \u2013 I make the same suggestion in the middle of raging bull markets. It\u2019s because you never know what\u2019s going to happen, and if you need cash in the short to intermediate term to pay bills, it shouldn\u2019t be exposed to that much risk.<\/p>\n

My friend is in his 40s, so he\u2019s presumably 20 years from retirement. If the market crashed and stayed down for the next three years, he might not feel great when he checked his account statements, but it would have no effect on his ability to pay his mortgage or put food on the table.<\/p>\n

Sure, it\u2019s not fun to see your net worth go down. When that happens, people feel pessimistic and they may cut back their spending. But if the decline won\u2019t impact your ability to do the things you need and want to do, making any moves simply because the market is falling is a terrible mistake.<\/p>\n

You\u2019ll never \u2013 and I mean NEVER \u2013 get back in near the bottom. That\u2019s when things feel the worst. Don\u2019t kid yourself by saying you\u2019ll get out now and get back in when the market is lower. You won\u2019t.<\/p>\n

The only way you\u2019ll buy near the bottom is if you have a system in place and stick to it. For example, you might invest every month or every quarter regardless of how the market\u2019s looking.<\/p>\n

If you sell because you\u2019re worried about stocks going down, you\u2019ll certainly miss the next move up \u2013 and probably for a while, because you\u2019ll be gun-shy about getting back in. That\u2019s just human nature.<\/p>\n

If a bear market would not affect your ability to live the life you want within the next few years, ignore the news \u2013 including what\u2019s going on in the market \u2013 and don\u2019t do anything (other than perhaps putting more money to work).<\/p>\n

If, on the other hand, a down market would negatively affect your lifestyle, then whatever amount of money you\u2019ll need to live your life on your terms should be in safer investments, such as cash or individual bonds (not bond funds). These will help you generate income and ensure you get your capital back no matter what\u2019s happening in the markets.<\/p>\n

Answering the question \u201cHow would a bear market affect me?\u201d and taking the appropriate action \u2013 even if it\u2019s doing nothing \u2013 should alleviate a lot of the stress associated with falling markets.<\/a><\/p>\n<\/p><\/div>\n