The Markets have ran for 4 years plus which is typical average for a bull. What usually happens is a 1-2.5 years of bear market.
With that I get asked quite often where the market is going and when will the bear come. I am no fortune teller and market predictions are usually murky at best, whether you are using economics, politics or technical analysis to reason.
Young investor with a long term horizon
Naturally, the group that asked most often are the young folks around my age. We are afraid of losing our capital.
The thing that works for us is that we probably still have 20-30 years of investing horizon more.
If you are a young person that grew their portfolio with a cost of $40k, losing 60% of your capital in a 1-2.5 years bear could look rather devastating.
The importance is your funding to your Wealth Building
I repeated a few times that as a young person, planning your budget and paying yourself first is important because having a regular source of funding to your investment war chest would enable you to live past this.
Should you be funding your wealth building with $1000/mth and $2000 of your bonus, yearly you would have contributed $14000.
If a 2.5 year bear comes along
If a long drawn bear comes along, your yearly $14k funding would be invested at a lower cost.
You would have picked up bargains that you were not able to pick up in your original $40k
That is why for an investor with this profile, the are in a unique position that they hope to have more down markets.
You would have invested $42k in this 3 years which more or less is your current portfolio cost.
If the bear doesn’t come
A crazy bull like the one in the 1990s can run for an extended period, or that the bear market in 1994 is so small historically that had you pull out all your money 100% and waiting for a 30% drawdown you would have been disappointed.
Your 40k will still be in the market working in that scenario, with another 14k of yearly funding always
Visualize and fortify your mind
Behavioral finance is a rather important school because we humans make the darnest mistakes.
Test drive a bear market or a small correction or continuation to see if your plan works well.
And do remember the importance here of paying yourself first by funding your wealth building
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