Oftentimes, the best path forward requires the greatest amount of sacrifice and perseverance. And we are all exposed to this lesson from a young age.

Getting good grades in school requires work and less play. Health demands tough choices when it comes to diet and exercise. And building long-term wealth through saving and investing is inherently delaying gratification.

2022 has been the worst year for many investors in their lifetimes. And on paper, it's the worst year since 2008 for the S&P 500 and the Nasdaq Composite. The emotional toll of watching your hard-earned savings erode is taxing and particularly brutal when it feels there is no end in sight.

But for investors who are still adding new capital to their portfolios, the sell-off has presented a rare buying opportunity for some incredible companies. And even if the bear market persists into 2023, it could still be a net positive for investors. Here's why.

A person holding a bag stands in a desolate setting and looks to their right at a lush over field, flying birds, and a bright blue sky.

Image source: Getty Images.

From in favor to out of favor

2022 was chock-full of staggering declines. The Ark Innovation ETF -- which is a good proxy for hypergrowth yet (mostly) unprofitable companies -- went from one of the best-performing exchange-traded funds (ETFs) to a major laggard. At its peak in late Feb. 2021, the Ark Innovation ETF was up a staggering 684% since its inception in Oct. 2014, compared with a 203% gain for the Nasdaq during the same time frame. Fast-forward to Dec. 26, 2022, and the Ark Innovation ETF is down 80% from that high and is now underperforming the Nasdaq by a wide margin.

ARKK Chart

Data by YCharts.

The 2021 and 2022 sell-off began with smaller-cap growth names but has since extended to many well-known companies -- particularly those with exposure to consumer spending, communications, and technology. Consumer discretionary and communications have been the two worst-performing sectors of 2022 because of steep declines for leaders in those industries. The two largest consumer discretionary stocks by market cap -- Amazon and Tesla -- which make up 37% of the sector, are both down more than 50% from their all-time highs. Meta Platforms, Alphabet, Netflix, and Walt Disney -- which collectively make up more than 55% of the communications sector, are all down 40% or more from their all-time highs.

XLC Chart

Data by YCharts.

But as you can see above, it's worth noting most of those largest holdings are faring worse than the sectors overall. Part of that underperformance may be due to valuation expansion by top holdings during 2020 and 2021. But given the extent of the sell-off, investors are getting a rare opportunity to scoop up shares of quality businesses at low prices.

Benefits of a prolonged bear market

The classic issue with most bear markets is that by the time most of the damage is done, few people have the luxury to buy at the bottom. The good news for patient investors who are saving regularly is that new money can be put to work at lower stock prices.

Dollar-cost averaging through times of volatility is a great way to let your money go farther. If a stock is down 50%, you're able to buy twice the number of shares for the same price. If a stock is down 75%, you can buy quadruple the shares for the same price as you could have at the top. 

Focus on inexpensive industry-leading companies 

Industry-leading companies with solid balance sheets that generate tons of free cash flow, like Alphabet, are in a prime position to take market share during an economic slowdown. And the best news is that Alphabet stock is the cheapest it has been in nearly a decade.

GOOGL Price to Free Cash Flow Chart

Data by YCharts.

Alphabet also has $22 billion in cash and equivalents and $94 billion in marketable securities on its balance sheet, compared with just $15 billion in long-term debt. This net cash position, and the fact that the company is free-cash-flow positive, gives it a big advantage in a rising interest-rate environment, since Alphabet isn't reliant on debt to run its business.

A glass-half-full approach to 2023

No one likes losing money. But another down year in 2023 or a prolonged bear market could offer a powerful reset for younger investors, folks who haven't reached their peak earning years, or really any investor who's a net saver. If some of your favorite stocks stay down for several years, it will be painful, but it will also offer an extended opportunity to buy them at a reduced price.

Predicting what will happen over the short term is a fool's errand. But data tells us that down years don't often happen -- and they are rarely followed by another down year. According to a New York University study, the S&P 500 suffered just 17 down years over the past 80 years. Just three of those 17 down years were followed by a second consecutive down year.

The stock market often bottoms out before a recession is over. And falling energy and housing prices suggest that we may have already seen peak inflation. So while it's easy to be negative, it's better to hold through periods of volatility instead of getting out of the market and trying to perfectly time when to get back in.

Entering 2023 with a game plan of how to respond to further downside or a turn of events to the upside will help you control your emotions and be comfortable with whatever happens. If the market sell-off persists, it could be an excellent buying opportunity. If the market begins to recover, you can take solace in knowing you didn't sell at an inopportune time.