Coronavirus Bear Market the Worst Since the Great Recession

As I write this post, we’re experiencing the worst bear market since 2008 (the Great Recession). The S&P 500 is down 29.7% from its highs.

COVID-19 coronavirus has been declared a pandemic. Governments are taking emergency measures. And stores are constantly sold out of hand sanitizer and toilet paper. This feels like a prequel episode to the Walking Dead.

It’s very tough to think about stocks and investing at this time. But for those with a long-term investment horizon (10 years or more) and on a good financial footing, this could be a great investment opportunity.


Over my 20 years of investing, I’ve experienced the pain of the Dot-com Bubble and the Housing Crisis. Through those investment experiences, I’ve come up with 4 strategies to handle a bear market. Here they are.


1) Continue dollar-cost averaging as usual

Like millions of other employees (including myself), you likely have a 401k or other retirement plan that lets you invest in auto-pilot.

Perhaps it’s $1,000 per month that you’re socking away. The easiest way to take advantage of a bear market is to just keep on dollar-cost averaging into your investments.

The main advantage of dollar-cost averaging is to buy stocks when they’re beaten down. It balances out the times that you’re buying stocks at all-time highs.

This is the ultimate lazy man’s (or woman’s) way of investing and has built a very nice nest egg for millions of people over the long run.


2) Remember to rebalance your funds

Many people have a target allocation between stocks and bonds in their portfolios. For example, they might have an 80/20 split or a 60/40 split between the two asset classes.

In a bear market, it might be a good time to check the allocation to see if it’s still close to your target. For example, a 60/40 allocation may start to look more like 40/60 as stocks decline. By rebalancing back to 60/40 (or whatever your target is), you’re purchasing stocks at lower prices.

When is the optimal time to rebalance? There’s no perfect method, but I would first rebalance when the S&P 500 index declines by 20%. Then I’d rebalance with every subsequent 10% drop of the index down to 50%.

At a 50% drop in the S&P 500, things will get very scary and there will be a lot of uncertainty. Rebalancing any further, although it can potentially be profitable, will not be feasible for most people. This is why I’d stop at 50%. More conservative investors may stop rebalancing earlier, perhaps at a 30% drop in the S&P 500.

Whenever I think about getting too greedy, I heed the famous Wall Street saying, “Bulls make money, Bears make money, Pigs get slaughtered!”


3) Increase your retirement contributions

This is a more aggressive version of #1. If you’re in a good financial position, you might consider bumping up your 401k retirement contributions once the bear market hits.

For example, if you’re currently investing $1,000 a month, you might consider bumping that up to $1200 a month or whatever you can afford to lose.

Whatever that amount, I would make sure that it can be sustained for at least 3 years. That’s about how long it took for stocks to reach a bottom during the Great Depression (1929 – 1932). 

Also, don’t dip into your emergency fund to do this. This should truly be money that you’re willing to lose.

In this coronavirus bear market, I just bumped up my 401k contributions an additional $80 every 2 weeks.

I also increased my M1 Finance weekly investments from $20 to $40 – check out my monthly portfolio review videos for more details.

4) Start putting your investable cash (that was on the sidelines) to work

I usually have a percentage of cash in my individual stock portfolios when times are good. For example, when the S&P 500 is at all-time highs, I keep my portfolio cash at around 25%.

When the market goes into bear territory, I start to deploy that cash. I’ll split up the cash into 4 equal slices and invest the first quarter when the market drops 20%, the second quarter At 30%, the third quarter at 40%. At 50%, I’m all in!

Why 50%? In the past 50 years, the S&P 500 has dropped 50% only 3 times. Twice if you don’t count the 49.9% drop from January 1973 to October 1974. With an investment time horizon of 10+ years, I feel pretty comfortable with this method of investing in a bear market.

Table: Bear markets in which the S&P 500 declined 50% in the last 50 years.

Dates (Start to End)% Decline
January 1973 – October 1974-49.9%
March 2000 – October 2002-50.5%
October 2007 – March 2009 -57.7%

This method can be tweaked depending on your risk tolerance. For example, instead of 25%, a conservative investor might have 50% cash or more in good times. A conservative investor might elect not to have an “all-in” point. Instead, they might choose to have a minimum percentage of cash at all times. Or they might choose a 60% drop in the stock market as their “all-in” point. There are many ways to customize this strategy to make it more conservative or aggressive.

So those are the 4 ideas on how to invest in a bear market. Tell me what you think of these strategies. Will you be using any of them in this bear market? What other strategies are you using? Drop a line in the comments.

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