- Investors need to accept that crashes and bear markets will happen. Have a plan for “buying the dip.”
- For typical investors, I recommend 90% ETFs and 10% “moonshots” — ie specific, strategic bets.
- During a bear market, you can buy quality businesses at a discount, so make the most of it.
A bear market, when stocks are down 20% or more from recent highs, is always a double-edged sword for investors.
On one side, you have fear and panic. On the other side, opportunity. One investor understands how to leverage both sides better than anyone: Warren Buffett.
I’ve long admired Buffett’s “be greedy when others are fearful; fearful when others are greedy” advice. He’s used this strategy to add more than $50 billion to his
Today, you have an opportunity to leverage these same principles to achieve financial freedom. Here are three core principles for buying during bear markets with modern updates for investors in their 20s, 30s, and 40s
1. Accepting that market crashes are part of investing
Since 1929, there have been more than two dozen
The best thing you can do as an investor is to plan ahead for them. The economy goes through cycles, and you’ll likely see a
or market crash a few times over the course of your investing journey.
Planning for a crash doesn’t mean timing the market. If you pay attention to headlines, “experts” wrongly predict when the next crash will happen on a weekly basis. Nobody knows when the next one’s coming.
But, you can always be prepared by:
- Having plenty of cash
- Building an “all-weather” portfolio
- Planning ahead with your advisor
You want to win during good and bad markets. To do that, you’ll want a strategy in place before the crash.
2. Have a strategy for ‘buying the dip’
Don’t just blindly follow Twitter’s advice to buy the dip. Have a plan for buying.
Here are a few things to think about ahead of time.
- Are you buying individual stocks?
- Are you buying the entire market?
- What’s your timeline for buying?
For the average investor, I like a balanced approach to investing that is roughly 90% ETFs and 10% “moonshots.”
ETFs allow you to buy the entire stock market at a discount without putting your eggs in one basket. The 10% “moonshots” are strategic bets on individual stocks, industries, or asset classes.
And no need to put all your cash to work at once. Spreading out your investments by dollar-cost-averaging into the market helps you take advantage of the dip while smoothing out the continued ups and downs.
To find the right investing approach, get clear on your goals and tolerance for risk.
A financial advisor can be a valuable guide.
3. Buy quality businesses with an ‘economic moat’ at a discount
If you are going to buy individual stocks, follow Buffett’s strategy of buying great businesses that are on sale. He’s a student of investing to this day, poring over companies’ financial statements to find the best opportunities.
What makes a great business?
- Healthy balance sheet (debt ratios tell you a lot)
- Competitive advantage; large market share
Learn how to identify these companies ahead of a crash. And when you buy, think about the 10-year potential. Don’t get too fixed on where the price will be one month or even one year from now.
You’re aiming for long-term growth over 10 to 20 years.
Lastly, remember that you’re not alone on your financial journey
Partnering with a financial advisor to build an “all-weather” plan can relieve a lot of anxiety, and even turn panic into opportunity.